Earnings Transcript for PBSFY - Q3 Fiscal Year 2024

Operator: Good morning, ladies and gentlemen, and welcome to our Q3 and 9 Months 2024 Conference Call of ProSiebenSat.1 Media SE. This conference is being recorded. Today's call is hosted by Mr. Dirk Voigtlander. Please go ahead, sir.

Dirk Voigtländer: Good morning, ladies and gentlemen, and welcome to ProSiebenSat.1's Q3 2024 Results Conference Call, also from my side. Today's conference call will be hosted by Martin Mildner, CFO of ProSiebenSat1. As always, Martin will first take you through the group's financial and operational performance of the first 9 months. He will conclude his presentation with comments on our outlook for the full year. The presentation will be followed by a Q&A session. With these opening remarks, I now hand over to Martin.

Martin Mildner: Thank you, Dirk. Dear ladies and gentlemen, also from my side, a warm welcome to our Q3 analyst conference. Before we go into detail, let me give you a quick overview of our financial performance. In the first 9 months, group revenues increased by 3% to EUR 2.656 billion. This reflects a solid performance in the Entertainment segment as well as the dynamic growth of our Commerce & Ventures segment. However, in light of the demanding economic environment, entertainment advertising revenues in the DACH region declined by 6% in the third quarter. On the other hand, Commerce & Ventures segment revenue grew by 19% in the first 9 months, therefore, compensating for the 13% revenue decline of the Dating & Video segment. Our adjusted EBITDA increased by 10% to EUR 267 million in the first 9 months, reflecting the group's revenue growth and cost savings, which more than compensated the increase in programming costs. In terms of our outlook for the full year, we confirm our targeted range for revenues and adjusted EBITDA. Due to the weaker development of TV advertising revenues in the third quarter and the TV advertising market that has also declined so far in the fourth quarter, we currently expect adjusted EBITDA to be below the targeted amount of EUR 575 million. I will share more details about the outlook at the end of this presentation. First, however, I would like -- now like to guide you through our financials for the third quarter and the first 9 months of the year. In Q3, the general economic uncertainty on ongoing consumer restraint had a negative impact on the advertising market and therefore, also on the revenue performance of the ProSiebenSat.1 Group. In addition, revenues in the Dating & Video segment decreased notably in a highly competitive environment. Despite the very dynamic and positive development of our commerce activities, the group, therefore, recorded a slight decline in revenues of 1% to EUR 882 million. However, in organic terms, this means, on a portfolio and currency adjusted basis, group revenues remained stable compared to the previous year. For the first 9 months period, group revenues totaled EUR 2.656 billion, an increase of 3% compared to the previous year. The dynamic growth of the Digital & Smart advertising revenues in the DACH region and the significant increase in revenues in the Commerce & Ventures segment were the main drivers of this development. The group's adjusted EBITDA decreased by 6% to EUR 104 million in the third quarter. In addition to lower revenues in the high-margin TV advertising business, this development is also due to the decline in revenues in the Dating & Video segment, which is operating in a challenging and highly competitive environment this year. In the first 9 months of the year, however, adjusted EBITDA increased by 10% to EUR 267 million. This positive earnings development is a result of the group's revenue growth across a large part of its portfolio as well as consistent cost management, in particular, targeted cost measures implemented last year. Adjusted net income for the third quarter amounted to EUR 31 million. For the 9-month period, adjusted net income increased to EUR 63 million, helped by an improved financial result and tax effects. Adjusted operating free cash flow decreased to EUR 25 million in Q3. This reflects, among other things, the weaker earnings development in the third quarter of 2024. In addition, there was a growth-related increase in working capital at Flaconi due to its strong business development. By contrast, the adjusted operating free cash flow improved significantly over the 9-months period, amounting to EUR 129 million. In addition to the increase in earnings, the positive effects here were mainly due to the postponement of investments in programming assets to the fourth quarter of 2024. Now let's turn to Page 7 and take a closer look at our Entertainment business. The Entertainment segment revenues declined by 3% to EUR 579 million in the third quarter. For the first 9-months period, however, the segment recorded a 2% increase in revenues. The main reason for the decline in revenues in the third quarter were the European Football Championship and the Summer Olympics. Both sporting events led to an expected decline in audience share and therefore, in TV advertising revenues as both events were broadcast by public broadcasters and partially also by RTL. In addition, the German economy and, in particular, private consumption, which is relevant to our advertising business, did not develop as positively as economic institutes had predicted it at the beginning of the year. Nevertheless, our Digital & Smart advertising revenues in the DACH region increased by 1%. This was driven by a 15% increase in AVOD revenues from the streaming platform Joyn, which also partially offset the losses of the advertising platform solutions business such as glomex and esome, which are also included in Digital & Smart. The high-margin distribution business continued its steady growth in Q3 with revenues up by 11%. The following factors contributed to this encouraging result

Operator: [Operator Instructions] We will move first to Julien Roch with Barclays.

Julien Roch: The first one is, can we have some more colors on the ad trends in Q4? I understand you gave us a low single-digit for the full year, but you already have October, November and then maybe a range for December. That's my first question. The second question is on free cash flow. You mentioned in your remark an improvement from '26 onwards, unless I misunderstood. So why not '25 if the campus is finished? And what was the cash cost of the campus this year and maybe last year? That's the second question. And then the last question is, on Page 16, you gave us the video view time of Joyn. Could we get the total viewing across all the ProSieben channel in DACH in any format, i.e., linear and on-demand?

Martin Mildner: I'm starting with your first question, probably for you, the most important question regarding our view on the ad trends in the Q4. Let me say it's really difficult to judge. You know that we already said that during the first 2 quarters, we had a really good development. And then we saw a decline in the Q3. And during October and November, I would think that it is fair to say that the development is nearly the same as in Q3. But nevertheless -- and you know that December is for us really, really important, not from -- only from the bookings from the agencies, but also from the add-on bookings, which are really dependent on every year and they could be really high. And therefore, this is the reason why it's probably for us too early to judge how the December will develop. And therefore, if we have much more clarity on this, since this is probably sometimes only in December due to the ad bookings, we have a better view on it. But so far, we clearly see the same trend in the first weeks in Q4 as it was in Q3. With respect to your question of the free cash flow and why it's only starting in 2026, I think this is mainly related to our investments in our new building, the new campus, and this is still ongoing in 2025. And it's obviously in the mid-single-digit -- sorry, mid-double-digit number. And therefore, the cash flow development will turn in the different direction from 2026 onwards. With respect to the Joyn figures, I think I would hand over to Dirk, who has much more clarity on the numbers there in this after the comment as well.

Dirk Voigtländer : As you know, we are currently not reporting the total video view time for the group as a whole. However, we are disclosing this already for Joyn, and you have seen that we have seen a significant increase in terms of the consumption of Joyn. The digital platforms in total have contributed about mid-single-digit-percent contribution to the total video view time. So it's still a long way to go to have a bigger impact on the total consumption. However, given the significant double-digit-percent increases we have seen on Joyn, we think we are here definitely on the right path. By the way, just to let you know, total TV consumption has dropped 3% across all households year-to-date. Due to the sports events in Q3, we have even seen an increase by 3% in Q3 2024. However, in the medium to long term, I think it's fair to say that the TV consumption will continue to decline. But as Martin has already outlined, we are working hard here on a continuing increase of the Joyn video consumption.

Operator: [Operator Instructions] We'll move next to Conor O'Shea with Kepler Cheuvreux.

Conor O’Shea: Three questions from my side as well. Firstly, just in terms of the advertising, in terms of your comments about December add-ons being potentially very high. I mean, is there any reason for you believing that, that would be the case this year? I think usually, you say between 0% and 10%, an average of 5% in add-ons. Is there any reason to believe that, that won't be -- that would be above average this year as opposed to average or below average for December? That's the first question. Second question, in terms of other advertising lines. Rest of world advertising revenues declined in Q3. Can you just give a little bit of color on that and what you expect for Q4? And also maybe in the digital advertising within the DACH, which slowed significantly in Q3, again, is that a sports event impact on rival channels? And then the final question, just in terms of the programming cost shift into Q4 tactically to avoid the strong lineup on rival channels in Q3. Can you just remind us how much that is that shifts from Q3 to Q4?

Martin Mildner: Conor, thanks for your questions. Regarding your first question on the advertising and our view for the add-on bookings, I think -- and we show this also in our presentation on Slide 12. The uncertainty in the advertising market in Germany is as high as we probably never see this before, at least not for a long, long time. And this is also reflected in all the negative news around, for example, Volkswagen, but also with respect to our government and the change in the government. And what we are seeing is probably some kind of slight stabilization in the mood. And therefore, it is really hard to predict whether our assumptions for the add-on bookings are the same as during the past years. It could be that they are lower, but it could be also if you have some kind of light at the end of the tunnel, and this is sometimes happening really fast, that it could be even higher than during the past years. And therefore, this is the reason why we are currently saying it is much too early, and it could also happen during December only that the momentum will be there. And also the Christmas business is not only before Christmas, but also after Christmas. And therefore, it is really too early to judge for us and in fact, that the December is quite, quite important. And maybe just one additional comment on your second question, which is also related to it. Even if we see some decline in the TV advertising market, we see from, I would say, September onwards or October and now also in November, really a strong growth, not only in viewing time on Joyn, but also reflecting this viewing time in the monetization of our formats on Joyn. And there, we see a much stronger growth than in the months before. And this is also compensating a decline in the TV advertising market so that we are still believing that even under these uncertainties, that probably our revenues in the entire Entertainment segment will be more or less flat compared to the last year. And if you then look on the EBITDA, it is clear that we have the higher program costs. Some of them are compensated with the savings, but the higher program costs are clearly impacting the EBITDA. And therefore, even with a flat revenue, we have some lower EBITDA. With respect to the program investment shift, I think I will hand over to Dirk.

Dirk Voigtländer: Yes. A quick comment here on the program CapEx. You might have seen that we have seen even a decline in terms of programming CapEx in the first 9 months of 2024. This, however, is, as we mentioned, partly due to the seasonal shift. We don't expect programming CapEx to be below prior year's level on a full year basis, which means there will be a mid- to high double-digit million euro amount increase in programming CapEx in Q4. However, please keep in mind that when you look at the last 12-month development in terms of the free cash flow, given this shift of programming, we could even achieve a free cash flow north of EUR 200 million despite the CapEx for the campus and despite the restructuring expenses we had in the first half. So on a full year basis, however, you can expect some normalization here in terms of free cash flow development because of this increase in programming CapEx in Q4.

Conor O’Shea: Okay. Very clear. And on rest of world advertising, the decline in the third quarter, can you give us a little bit of color on that, please?

Dirk Voigtländer: I think there, we rather expect a flat to slightly positive development in Q4. But there is no meaningful deviation from the trends we have seen in the first 9 months.

Operator: We'll go next to Nizla Naizer with Deutsche Bank.

Nizla Naizer: Great. I hope you can hear me. I have 2 questions. The first is on, as you mentioned, sort of [German] consumer or the macro environment impacts consumer spending and that's taking an effect on what you're seeing in terms of ad growth. We're hearing other players in the market like in other formats like out-of-home, for example, still talking about growth in Q4. So maybe could you give us some color as to whether you think TV and [other] format is suffering a lot more? Or is sort of the underlying advertising market as a whole shrinking as a result of the macro environment? Some color there would be great. Secondly, the strong growth in Flaconi, could you remind us again, has this been profitable growth? Is Flaconi still being run at breakeven levels with a lot of promotional activity? And would this continue to be the case in Q4? Some color there on the profitability profile of Flaconi and maybe Verivox would be great.

Martin Mildner: Nizla, I will start with your second question and come to our beautiful side, at the moment, in our business. So first of all, we think from an entire Commerce & Ventures segment, we are probably able this year to reach, the first time in the history of Commerce & Ventures, a turnover of more than EUR 1 billion or roughly EUR 1 billion. So this is a great success of the segment. And if you're looking on the EBITDA side, it is clear that it is getting more and more profitable, especially on the Flaconi side. Flaconi is probably hitting the EUR 500 million turnover and increase their expectations on the EBITDA and it is clearly that -- and if you look on the website, it's clear that this is not driven by discounts or whatever. It's a good, good management, which we now hired and have for 2 years on board with Bastian Siebers, and they are really working not only on the revenue growth, but also on the EBITDA development. And there, we see even a better margin than last year. So it is really not bought revenues. It's clearly they're working on both on the revenue side, but also on the margin side. And the same with Verivox, they are also developing quite, quite good. And please remember that they developed already in the last year with a high, high revenue growth. And even this year, they can continue with the growth story. On the first question, in fact, that this is more reflected on the market, I would hand over again to Dirk.

Dirk Voigtländer: Yes. I think when you look at the composition of the customer base of -- I think you referred to Stroer's comments this week, they have a much broader customer base with a lot of smaller customers in Germany. I think it's in the 5-digit number compared to our customer base, which consists of primarily larger, partly international and also national advertising customers. So therefore, they have, in general, a more diversified customer base, which makes a difference. But the other thing here is that TV in general, is probably a bit more cyclical than the -- than outdoor advertising. There is a lot more flexibility to react to changes in the underlying development of our customers' business. We also have larger budgets of these individual customers and especially in the fourth quarter, where the add-on bookings play a material role in terms of advertising spending, our customers have a lot of flexibility here to spend. This being said, if our customers face also a tougher development in their business, I think it's very easy for them to react to such developments, which also leads to somewhat higher volatility in our business. When you look at the past, for example, the past 4 to 5 years, we have seen that our TV advertising revenues or the German-speaking ad revenues have developed largely in line with underlying macro indicators. And I think also the slide in our presentation shows that the softer TV ad market development highly correlates with the German GDP development. So I think those are probably the main reasons here why we are seeing a softer development compared to outdoor.

Operator: [Operator Instructions] With no other questions holding, I will turn the conference back for any additional or closing remarks.

Dirk Voigtländer: Okay. Ladies and gentlemen, that was our last question for today's call. My colleagues in the Investor Relations team and myself will, as always, be available for any follow-up questions you might have. Thanks, everyone, for your participation, and have a nice day. Bye-bye.

Operator: Thank you. Again, ladies and gentlemen, that will conclude today's call. We thank you for your participation. You may disconnect at this time.