RTL Group SA

XETRA:RRTL

Earnings Call Transcript 2021-Q3

[Björn Bauer, Chief Financial Officer]

Yes. Good morning, everyone, and thank you for joining this analyst call for RTL Group's results for the period January to September 2021. I'm here in Cologne together with Irina and Oliver from our Investor Relations team. The presentation for this call is available online to download on our corporate website, rtlgroup.com, and you can also follow my presentation via the link in your invitation.Today, we will cover RTA Group's Q3 highlights, our outlook for the full year 2021 and an update on streaming, including the new RTL Plus that will be presented at a separate launch event in Berlin today.Let me start with the highlights in the third quarter of 2021. Overall, we're very pleased with the first 9 months for RTA Group in terms of financial and operating performance as well as with our strategic progress. 3 major developments marked the third quarter. First, the strong growth of the TV advertising market in the second quarter continued in the third quarter of the year. As a result, our largest revenue stream, TV advertising was up 16% in Q3 versus prior year. Second, our streaming and content businesses continued to grow strongly. And third, with active portfolio management, we continue to make significant progress in the transformation of RTL Group.With the combination of RTL Deutschland and Gruner + Jahr, we announced 3 major consolidation moves this year to create national cross-media champions in Germany, France and the Netherlands. We also fully acquired Super RTL to strengthen our German families of channels, and the growth plan for Fremantle is well on track, targeting full year revenues of EUR 3 billion in 2025. Following the step-up in Eureka in the first half of this year, Fremantle closed the acquisition of 12 production labels from Nent in the Nordics in September. These labels are now called This is Nice Group. Also in September, Fremantle completed the sale of Ludia to Jam City for USD 165 million. Given our strong performance, we're happy to confirm our outlook for 2021, which we raised in August with our half year results presentation.Today, our German streaming service rebrands to RTL Plus. We are constantly increasing the number of originals available on RTL Plus across all genres. The next phase to boost RTL Plus will be a cross-media expansion in the first half of next year, with the goal to build Germany's leading entertainment platform. We will show you a preview of this cross-media service later in the presentation and our significantly increased streaming targets.In the first 9 months of 2021, group revenue was up 10.3% to EUR 4.5 billion, mainly due to strong growth of TV advertising revenues, which was up 19%. Our content and streaming growth businesses performed strongly. Fremantle's revenue was up 24.4% to EUR 1.291 billion, with delivery of The Mosquito Coast and the third season of the high-end drama series American Gods, alongside the scope effect of the full consolidation of Eureka. Streaming revenue from RTL Plus and Videoland was up 30.6% to EUR 162 million, thanks to the strong growth in paying subscribers. And our high-margin distribution revenue i.e., the revenue generated across the distribution platforms: cable, satellite and IPTV including retransmission fees, increased by 4.9% to EUR 320 million. On an organic basis, i.e., before scope and FX effects, group revenue grew by 17.2% compared to the first 9 months of 2020.Moving on to the next slide. On this slide, you can see the development of RTL Group's revenue in Q1, Q2 and Q3 for the year 2019 to 2021, alongside the development of our largest revenue stream, TV advertising. The soft start in 2021 was marked by lower TV advertising revenues, especially in Germany and the Netherlands, due to lockdown measures. In addition, there were negative exchange rate effect and significant scope effects resulting from the disposals of BroadbandTV and Groupe M6 diversification businesses, Home Shopping Service and iGraal.In the second quarter, TV advertising revenue grew by 65%. As a result, group revenue grew 36% compared to Q2 2020. In the third quarter, RTL Group's revenue was up 3.9% compared to Q3 2020 and even up 2.3% compared to Q3 2019, driven by significantly higher TV advertising revenues. On an organic basis, i.e., before scope and FX effects, group revenue grew in the first 9 months by 3.8% compared to the same period in 2019, which shows that we are already exceeding the pre-crisis level on a comparable basis. To summarize, we have observed, again, the same picture as last year. Once the economic environment started to improve, TV advertising money came back quickly, and this clearly shows again the strength of TV with regards to building reach and brands in a high-quality and safe environment. Let's turn to Page 6, which shows the group's outlook for the full year 2021 that again, we raised at the beginning of August. Following RTL Group's Q3 results, we confirm the previously given outlooks with expected revenues of around EUR 6.5 billion, an adjusted EBITA of around EUR 1.05 billion and streaming startup losses of around EUR 150 million so that the adjusted EBITA before streaming will be around EUR 1.2 billion.Moving on to streaming, where I will give you a performance update, a short presentation of the cross media extension of RTL Plus, leading to significantly increased streaming targets and ending with a sneak preview of the new service. The number of paying subscribers of the group's streaming services continued to grow strongly and was up by 91% compared to the end of September last year. This translates to average net subscriber additions of 130,000 per month from September 2020 to September 2021. RTL Deutschland accelerated the growth of its streaming service. The number of paying subscribers more than doubled to 2.389 million compared to the end of September 2020.The partnership with Deutsche Telekom's Magenta TV contributed significantly to the growth, also boosted by the growing number of original formats. Until the end of the year, RTL Plus will provide an additional 17 originals, including Ferdinand von Schirach - Glauben as of today, followed by the new drama series Sisi by the end of 2021, just to mention a couple. RTL Nederland's streaming service, Videoland, recorded paid subscriber growth of 24.8% compared to the end of September 2020. Videoland's growth was driven by the third season of the original series, Mocro Maffia, and the reality hit format, Temptation Island. Moving on to Slide 9 and turning to the new RTL Plus. In the first half of 2022, RTL Plus will be enlarged to a cross-media entertainment and service comprising RTL Plus originals, movies, TV series, shows, documentaries, sports and news plus music, podcasts, audio books and premium digital magazines. The new RTL Plus will be Germany's first cross-media champion, offering our audiences the most diverse spectrum of high-quality entertainment and independent information, all in an easy-to-use and personalized manner with a significant price advantage for the customer. This one app, all media approach is a true innovation in the German market with the motto watch more, listen more and read more.Watch. The new RTL Plus will provide a growing number of originals and more than 50,000 hours of video content across all genres as well as the HD live streams of all the 14 TV channels of RTL Deutschland. In terms of listening, the new service will also include music, audio books, audio plays and exclusive podcasts. RTL Plus has agreed to exclusive partnerships with Deezer for its premium package to offer a comprehensive music offering, and the publishing group, Verlagsgruppe Penguin Random House Deutschland for audio books. In addition, RTL Plus will include the podcast offering from Audio Now and radio offering from our German RTL stations. Read. RTL Plus subscribers will also be able to read digital editions of premium magazines from the Gruner + Jahr portfolio, with access to a diverse range of content from popular brands such as Stern, Brigitte and GEO. This cross-media extension marks the first example of the upcoming combination of RTL Deutschland and Gruner + Jahr. And the new RTL Plus will use state-of-the-art technology with a high level of personalization and content recommendations based on artificial intelligence and editorial inputs for a true cross-media user experience. The successful partnership with Deutsche Telekom continues and the new RTL Plus will also be integrated in the Magenta TV offering.Following the strong growth in high paying subscribers year-to-date and as a consequence of the increased investment in RTL Plus and Videoland, RTL Group significantly raises its midterm targets for the 2 services as follows: We aim to grow the total number of paying subscribers to 10 million by the end of 2026, to grow streaming revenue to EUR 1 billion by 2026 and to reach profitability in the same year. To reach these goals, we will grow the annual content spend for RTL Plus and Videoland to around EUR 600 million in 2026. This means that we're going to triple the annual content spend compared to 2021. The peak of the streaming startup losses expected next year was around EUR 250 million.And finally, I'm happy to show you a sneak peak of how the new RTL Plus will look next year. You can see at the top of the app visualization how the different categories will be structured across TV video, music, podcasts, audio books and magazines. At the bottom, you see the feature, [Foreign Language]. In English, you would call it My Feed, plus Discover, Search and Save. My Feed will be the technological heart of RTL Plus and will, by default, be the starting page of the service. It's is a cross-media recommendation engine that combines database recommendations with curated recommendations from our editorial teams. In other words, data meets journalistic power, a true innovation and USP in the market. My Feed will also accompany our users throughout the day. In the morning, it may recommend the latest news or podcast for the daily commute. Later in the day, My Feed may notify users in a timely manner about RTL shows or the new album of one of the users' favorite artists.To summarize, we are creating an easy-to-use, attractively priced and true cross-media entertainment experience for our users that will allow us to gain a bigger share of our users [ saving their ] time. This is the concept of RTL Plus, one app, all media.Many thanks. This brings me to the end of the presentation. I'm now happy to take your questions.

[Operator]

[Operator Instructions] And the first question is from the line of Julien Roch from Barclays.

[Julien Roch, MD & European Media Analyst]

Yes, it's Julien Roch with Barclays. Björn, Irina, Oliver, first question is, can we get the ad trends in your main markets, so Germany, France, Netherlands in October and, if possible, November? That's my first question.Second question is why not raise your full year guidance? When M6 reported their Q3, everybody upgraded their full year numbers. [indiscernible] just raised their guidance, so I would have expected you to raise guidance on the strength of your Q3. So what's the rationale there? That's my second question.And then the third question is on the new streaming target, do they still include France, which I believe you will deconsolidate if TF1, M6 does happen? And when will you split streaming between Germany and Netherlands? Because most analysts do their model based on business units, so you kind of have the business unit and then streaming on the side, but that is actually included in the numbers. So you probably don't get the benefit of streaming because of the way people model the company.

[Björn Bauer, Chief Financial Officer]

Yes, Julien, happy to answer the questions. I'll take them in the order you asked them. Let's start with the ad trends in October. We will continue to be happy with the momentum in October. We see growth in October across the portfolio, I would say, in the mid- to high-single digits, and the trends are not dissimilar, I would say, in the market. It's a little bit too early for November and December. I mean when you look at last year, we had a strong Q4, which was up -- was the pre-crisis level, around 3%. We're seeing some, I'd say, weaknesses in some industries, especially in the auto industry. We've seen some supply chain issues. Tourism is still below historic levels. But I think it's also important just when you look at the last 3 elements that I mentioned, I think these are upsides for the coming year. So all in all, we are -- we remain optimistic for Q4, again, slight growth in October. And overall, I think Q4 will be, I think, around or slightly below Q4 of last year.In terms of the outlook and the guidance, we did raise the guidance substantially in August, and we do confirm the outlook of around EUR 6.5 billion and around EUR 1.05 billion in terms of EBITA. But again, as I said, we're very pleased with the strong performance in Q2 and also the ad trends in October. On that basis, I see currently more upside than downsides in our outlook, and -- despite some of the uncertainties that I just mentioned. I think the other point to consider here is when you think about the outlook that we have given, we've also raised our outlook for the streaming targets quite substantially, and this is where kind of our focus is in the moment. And as you know, Q4 is a large quarter for us. There is still, I would say, a few moving pieces, and we'll see where the year will end.In terms of streaming disclosures, the first question was whether France is included in the targets. That's not the case. The targets solely relate to Germany and the Netherlands, so 10 million subscribers in Germany and the Netherlands targeted for 2026. Obviously, we have ambitions for France that will be communicated separately over the next year, I believe, and we will review the rest of the portfolio in terms of our streaming ambitions as well.And then lastly, why is streaming not a separate business in terms of kind of disclosures. We have consistently, I'd say, increased the disclosures in the past around streaming and will continue to do so in the future. But I think it's also important to mention that streaming is not a separate business. We fully believe in the fully integrated offering, there are synergies between the linear and nonlinear when you think about marketing, when you think about windowing, when you think about content investments. And I think the new RTL Plus also shows this integrated approach, and as such, we also believe it makes more sense to continue to report the numbers on a, I would say, yes, geographical footprint, but we'll continue to review and increase the disclosures around streaming. I hope this is helpful.

[Julien Roch, MD & European Media Analyst]

No, that's super helpful. No, no, I agree that streaming is not a separate business. It clearly is an integrated business, but I'm just saying that you should split the revenue -- at least the revenue, if not the revenue and the profit between Germany and the Netherlands because at the moment, I think most model are on a business unit basis, and therefore, not everybody is modeling streaming. So that was just -- my wish is to split revenue and losses into Germany and Netherlands.

[Björn Bauer, Chief Financial Officer]

Okay. Understood.

[Operator]

Next question is from the line of Annick from Exane BNP Paribas.

[Annick Tonie Maas, Analyst]

So my first question is just at this increased investment, how much is going to be video content versus all the other things that are going to be part of the new platform?Then my second one is what triggered you to upgrade that guidance for 2026 now and not wait maybe another couple of years to see how it goes? And then just lastly on Fremantle, if you could give us a guidance for the full year.

[Björn Bauer, Chief Financial Officer]

Yes, happy to, Annick. Again, I'll go through the questions one by one in the order you just asked them. First, the new investments and kind of the losses that we'll incur. They go into, I would say, content is one area. Second is technology, but certainly also marketing. We're not splitting up kind of where exactly the investments go. A significant part is obviously in video content that is continue -- will continue to grow. The second biggest, I would say, content category is music, which is also shown by I would say all the market researchers as the key component. And adding a fully comprehensive music offering, I think, will be a significant advantage to the customer and we'll give it the time when we'll release the pricing also at an attractive price point. It will be the full Deezer premium catalog with around 70 million songs in the moment, so some of these investments also go in that. And the other content areas are relatively speaking, smaller to video and music.Why have we upgraded the guidance now? I think there are 2 reasons. One is we're very pleased with the performance year-to-date. We are now at 3.4 million paying subscribers. As you know, our previous target was 5 million to 7 million by 2025, so I think it was a natural question, whether we still believe this is the right ambition level or whether we should increase it. That was one reason. And the other was the, yes, the new RTL Plus, the investment in the cross-media offering, and we wanted to share with the capital market how big the opportunity is that we are seeing.Lastly, on Fremantle, full year outlook. We will see a continued strong growth in Fremantle and EBITA should be, I would say, close to precrisis level, but not fully.

[Operator]

The next question is from the line of Conor O'Shea from Kepler Cheuvreux.

[Conor O'Shea, Head of Media Sector]

Yes. Bjorn, just -- the first question, just to come back on the streaming. I guess you forecast for 2026 imply a bulk of the growth would come from Germany. I'm just wondering what you've seen so far from your sort of 3 million base across the 2 in terms of those households that are paying subscribers, what the impact on the free-to-air TV consumption has been? If you could give any insights on that would be very interesting for me.Secondly, just in terms of the Q4 last year, you mentioned plus 3% year-on-year. So can you just remind us which months were the strongest and which months are generally the biggest in Q4? And then finally, just on programming spend so far in the second half of the year. I think your [ Plus payer ] stepped up significantly their investments in Q3 but not necessarily for Q4. What -- how are you playing it with the ad market probably stronger than expected so far in the second half of the year? Could you be minded to spend more or similar to [indiscernible], the return of live shows could mean you're able to substitute lower cost programs?

[Björn Bauer, Chief Financial Officer]

Okay. A number of questions. I'll do my best to answer them, but to be honest, if I'm not covering all of the points that you mentioned, but I'll start with streaming.One of the questions you asked whether the majority of the growth is expected to come from Germany, and that can be confirmed. I mean Germany is -- I mean just in terms of households, about -- yes, 4x bigger than the Netherlands. And as such, that's why we see a majority of the growth there.In terms of TV viewing and kind of usage of our streaming services, that's not an easy-to-answer question and we don't have full data. What we realize is also a question of how we attracted the users. So to give you one example, the users that are more -- that we are gaining through our owned and operated platforms, they are, I'd say, a little bit more younger skewed and more urban and a little bit more female. Where there's -- as you know, we have the partnership in Deutsche Telekom. The users that we gained, especially through the physical network of their stores, is a little bit more male skewed, a little bit more -- less urban, a little bit older. And just by comparing these 2 groups, you also, obviously, the TV usage is a little bit different. So there are a number of factors playing into here. I think it's a little bit too early, but overall, as you know, the TV usage is high. And we see a lot of, I'd say, usage that is concurrent with TV viewing and that use both as linear and nonlinear service.In terms of Q4 2020, the biggest months are October and November. December is a little bit smaller by comparison and programming spend. We have started to increase programming spend and we're looking to also increase programming spend next year, but mostly on the nonlinear side.

[Conor O'Shea, Head of Media Sector]

Okay. Understood. And just to come back on the Q4 last year within the 3% growth was November, your strongest month of growth overall?

[Björn Bauer, Chief Financial Officer]

Give me a second. I think December was overall the strongest month. Yes.

[Operator]

There are no further questions at this time, so I hand back to Björn Bauer for closing comments.

[Björn Bauer, Chief Financial Officer]

Well, thank you very much for joining this call and your interest, and we're looking forward to keep in touch with you at one of the next conferences. And wish everyone a good day. Thank you.