Half Year 2022 MFE-MEDIAFOREUROPE NV Earnings Call Sep 28, 2022 (Thomson StreetEvents) — Edited Transcript of MFE-MEDIAFOREUROPE NV earnings conference call or presentation Wednesday, September 28, 2022 at 7:00:00am GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Marco Giordani MFE-Mediaforeurope N.V. – CFO, Central Manager of Administration, Finance, Control & Business Development & Executive Director * Matteo Cardani MFE-Mediaforeurope N.V. – MD of Publitalia * Sara Bersan ================================================================================ Conference Call Participants ================================================================================ * Andrea Randone Intermonte SIM S.p.A., Research Division – Research Analyst * Fabio Pavan Mediobanca – Banca di credito finanziario S.p.A., Research Division – Research Analyst * Sarah Simon Joh. Berenberg, Gossler & Co. KG, Research Division – Analyst * Stefano Gamberini Equita SIM S.p.A., Research Division – Analyst * Thomas A Singlehurst Citigroup Inc., Research Division – MD & Head of European Media Research ================================================================================ Presentation ——————————————————————————– Operator  ——————————————————————————– Ladies and gentlemen, thank you for standing by, and welcome to MFE-MediaForEurope 2022 First Half Results Web Phone Conference Call. (Operator Instructions) I would now like to hand the conference over to the Head of Investor Relation, Sara Bersan. Please go ahead, ma’am. ——————————————————————————– Sara Bersan,  ——————————————————————————– Good morning, ladies and gentlemen, and welcome to the first half results of MediaForEurope. Let me introduce immediately the speakers of today. The presentation will be hosted by our Group CFO, Marco Giordani; and by Matteo Cardani, Managing Director of Publitalia. Let me hand over immediately to Matteo for the advertising and audience outlook. Matteo, please go ahead. ——————————————————————————– Matteo Cardani, MFE-Mediaforeurope N.V. – MD of Publitalia  ——————————————————————————– Thank you, Sara. Good morning, everybody. Thank you for your attendance. Today we comment on H1 2022 results with an outlook of ongoing indicators for current trading on Q3. Starting from the economic scenario, we all well know the macroeconomic situation and the consequential advertising market deterioration that each European country with no exception is experiencing. My focus today is simply to remind, to share the key relevant elements for the advertising dynamics. Today even if there are a lot of factors, the pandemic long tail, the war, the energy crisis, the raw material and commodity price increase factors that have been putting the economy under pressure since midyear 2021, we are not experiencing the sudden shock situation we had 2 years ago. During the last 2 years in the industry, we all learned to act in a high uncertainty context and now we are able to adapt our business strategies. This practically turns into a more gradual evolution of the economic indicators. In a few words, a slowdown in growth, a slowdown, but not a shock in the demand or a severe recession. As we see in Chart #3, we are witnessing a gradual decline in consumer confidence, not in business confidence, luckily. But again, we are not in a shock situation. And the material proof of this is demonstrated by the following chart, Chart #4, where you can see that sales of services are still positive in the first part of the year, and sales of goods more impacted by the energy cost inflation are almost flat. Having said that, now we move from the macroeconomic indicators to the advertising market. And as you can see in Chart #5, the advertising market in the first half of the year is losing minus 2.9% with a Q2 performance at minus 5.5%. This is, honestly, is mainly explained by the comparison with June ’21, where we had Euro Football Championship. If we take this component out of the baseline, the underlying trend is slightly negative, lower, on minus 2.9%. In this context, MFE performance is on parity versus 2021 and almost on parity versus 2019. And this should be considered a good performance considering the war outbreak, the energy crisis and the inflation. In fact, as you can see from Chart #6, we are on the same level of 2021 baseline. And most of all, we are showing a further improvement of our market share from 41.9% last year ’21 to 42.6%. So an improvement of 70 basis points year-on-year. Now the second part of my speech is dedicated to sector dynamics and the audience trends. So talking about the sector dynamics, it’s interesting to observe that the impact of the current situation is strongly asymmetrical between goods and services, as you can see in Chart #7. In fact on the one hand, automotive and food are the sectors most affected by the energy cost and the shortage of raw materials and components, and they result in a decrease in level of advertising investment. On the other hand, e-commerce, direct-to-consumer, telco sectors and most of all tourism and leisure are maintaining or even increasing the level of advertising investment, so counterbalancing the performance of the weaker sectors. As a general scheme, we carefully divide the market into 3 segments. So we have growing sectors. They represent about 50% of the market and 50% of our revenue, and they bring a positive contribution on our performance. Here you have services, housing, leisure that have structural growth with positive mid-single-digit rates and reach high double-digit peaks in sectors such as personal care, media publishing and leisure and tourism. Then you have stable or slightly declining sector. This is worth about 40% of the market and also our revenue. In this cluster, you find sectors impacted by the inflation of prices such as food, pharmaceuticals, banking and finance. And the performance of this sector is flat or down low single digit. Then declining sectors, they only worth only 10%, 12% of the market and our revenues. And most of all, auto sector represents about 60% of this segment, which despite incentives in the second half will have a better trend than the first half, will decline double-digit in fiscal year ’22. And this group also includes toiletries, household appliances, consumers’ durables, which are also affected by the shortage of raw materials and semi components. Having said that, the conclusion is that in H1 ’22, the growing sectors performance is offsetting negative trend of others. Now commenting on Chart #8, you see that the retail sales trend by sector is mostly positive, and the positive sectors account for 90% of our business. And you see that the only negative sector that is actually experiencing a material decline in retail sales is automotive, which represents 10% of our revenues. And combining the weight of each sector with advertising trend, you come to Chart #9. And in Chart #9, you have the weighted contribution by sectors on our revenues. And so you can appreciate the fact that the negative trend of some sectors as automotive has been more than compensated by the positive dynamics of other sectors such as pharma, telco, travel, leisure and clothing that are benefiting from the post-pandemic recovery. And generally speaking, we have to take into account that e-commerce and direct-to-consumer sectors are becoming more and more relevant, growing in terms of weight. They account for 10% — 50% of total market on top of the traditional retail distribution, which is still growing. Finally, last chart of my presentation, let’s have a look at the audience trend. I have three charts to comment. The first one is #10. And the comment is that, okay, despite all the talks around linear TV audience downturn, actually our linear TV audience is in a good health. We are plus 1.1% versus 2019 that our remark is the right comparable basis, not only for revenues, but also for audiences. And this is not a random outcome, but is the strength of our content offer. And on the solid ground of this linear baseline, we had high double-digit growth of the digital screens. So connected TVs, mobile, desktop and this brings the total audience to plus 3.1% growth rate. This is a measure of total audience now available, thanks to Auditel total audience release during this year. So the combination output out on first screen linear plus the high double-digit growth from digital screen is positive, some scenario to protect our legacy business and to increase the revenue diversification towards a higher digital mix. And so we have under the introduction of total audience, 3 different positive perspectives. The first perspective is quantitative because as you see in Chart #10, you see that total audience has 2.0% to the audience trend performance, before this number was not available, was not tracked. But most of all, as you can appreciate in Chart #11, the — we have a qualitative net addiction because total audience is adding younger viewers profile from digital screens. And this is particularly appreciated because we have a more than proportionate incidence of light linear viewers, people under 44, target groups that naturally commands a higher price — higher CPM in general and the CPM of digital is higher than the CPM of linear television. Last but not the least, in Chart #12, you have this chart representing the migration from linear to digital that allows pricing upside. So a few comments on this. We have a pricing upside opportunity on digital screens. If we measure with this synthetic measure that we call revenue per hour, so the revenue we get for each hour consume on each single screen. And the comment is — so to summarize is that, okay, linear TV inventory is structurally larger than the one on digital because of different viewing habits, but higher digital CPM more than compensate such a structural lower inventories. And the good news is that the CPM of digital is still increasing year-on-year. And in normal times, the advertising fill rate of linear television is quite close to saturation while connected TV and digital still have a lot of room for growth. So more user, more use, higher fill rate. And that is why we see a significant high growth opportunity in the digital space for MFE. Generally speaking, one, the first lever is the growth of the digital advertising market in Italy that is going on. And okay, compared to Northern Europe is relatively behind, but it is growing a lot year-on-year. We do think we’ll fill the gap in the short-term. And on top of it, we are confident on the expansion of our market share. And having said that and commenting on H1, I hand over to Marco. Thank you. ——————————————————————————– Marco Giordani, MFE-Mediaforeurope N.V. – CFO, Central Manager of Administration, Finance, Control & Business Development & Executive Director  ——————————————————————————– Thank you, Matteo. Good morning to everybody also on my side. And today, I’m going to give you a quick summary of the first half performance and update on the full year guidance. In terms of revenue, we reached EUR 1.388 billion revenue, in line with last year. We got EUR 112 million EBIT, and we closed the first half with a group net profit of EUR 84.6 million. In these numbers and certainly in the comparison with the last year’s performance, you have to remember the one-off element that affected the 2021 first half that I briefly summarized in the gain coming from the disposal of [TowerTel] that we accounted last year an extraordinary gain of EUR 86.7 million. And also the financial — the positive financial impact we got last year of around EUR 20 million coming from financial income that’s connected to proceeding. So in total we have, let’s say, some non-comparable items that affected positively 2021 of around — of more than EUR 100 million. And lastly, at the group level, we closed the first half with EUR 630 million net. And the cash generation — the group cash generation improved to EUR 238 million, much more higher than the last year one. Moving to the Italian sector — to Italian geography, in Page 15. Matteo has already commented the advertising performance. And the other revenue line that we can see was almost EUR 148 million in the first half, plus 13% compared to the first half 2021. And main contribution of — the main contribution to this growth has been the OTT platform performance. So these were the revenue coming from Infinity, DAZN contract, clearly Medusa with the reopening of cinema, clearly not yet at the full range of speed, but I think certainly better than in 2021 was the main contributor to this growth. In terms of full year guidance, we are confirming our EUR 290 million to EUR 300 million full year guidance for other revenues. Clearly there is a little bit of uncertainty on this line connected to cinema gain, clearly cinema reopened, but we’ll see what the winter will take. And also, as Matteo was describing, everything related to DAZN contract will be clearly affected by the macros and the advertising market trends. Now moving to cost. I mean, the first half result was a total cost line for EUR 957 million, but this number, as we explained and commented a little bit. As we said in the last call, 2022 will be affected by, let’s say, seasonality in terms of cost performance. The first half, we have a non-comparable cost increase due to football rights acquisition of Coppa Italia and Supercoppa. And again, in terms of comparability, in 2021, we didn’t have the DAZN contract in place. And so these 3 elements, so Coppa Italia, DAZN and Supercoppa accounts in the first half were at least EUR 70 million. Then, as you can imagine, we suffered from inflation and energy cost increase as everybody and the first half has been affected by almost EUR 15 million — EUR 15 million increase of costs related to energy cost and inflation. If you exclude these one-off costs, clearly, the performance of the first half has been pretty remarkable in terms of cost control with it implying minus 9% on a comparable level. And certainly minus 9% compared to the pre-COVID levels, so the first half ’19. So again, something very remarkable. Moving to the guidance, we are not moving our guidance for the time being, that I’m repeating is EUR 1.8 million for the full year. Clearly also second half 2022 will be affected by inflation and energy costs. So we’ll place savings to compensate and offset these costs. While on the other hand, the DAZN, the Supercoppa and the Coppa Italia costs are already in the compared, let’s say, number of 2021, so will not represent a difference in the second half. So again, I’m confirming the EUR 1.8 billion target for the full year. Clearly we are going to manage the next month in a very tactical way. As Matteo was saying, the visibility on advertising is very short, and we have already put the company in a sort of COVID approach in the sense that we are really acting on a fortnight basis, and we are adjusting our scheduling and grid and all the costs are related to the performance of the top line. So we will certainly be able, as always, to manage cost following what the advertising revenue will give us. So that’s the best estimate we can give. EUR 1.8 billion is the guidance, but if the advertising revenue will move downwards, we will adjust the cost base as much as possible. Moving below, the EBIT line, financial charges were positive by — so actually, we have financial income, so positive for EUR 15.2 million. In this line, clearly, we are accounting the dividends coming from ProSieben that we cashed in, in the second quarter 2022, much more higher than the last year one in terms of guidance for the full year, we are confirming EUR 10 million income. And I have to remind that we are experiencing an increase of rates, interest rates on our debt, but luckily, we were able to cover that risk already before the crisis. So we are not going to suffer any material effect on rates on our financial charges. And that’s the reason for which we are confirming our EUR 10 million, that was the guidance we gave in the previous call. Moving to Page 17. Total CapEx are declining by 3% in the first half. And we are confirming EUR 270 million, EUR 280 million for the full year. Clearly that’s something that’s to be seen also in relation to the reopening of cinema. So clearly, last year, we had a very low number because cinema was closed, so investment in the cinema rights were almost 0, while now back to normality. And on the other hand, in this line, you are supposed to take into account that the dollar exchange rate still depends on the 1 year ago. We are getting more or less 10% higher cost in euro for U.S. rights. And that’s the target I gave you is also the result of additional savings to compensate these 2 elements of the cinema reopening and the, let’s say, more expensive dollar we are getting in the second half 2022 compared to the second half 2021. Lastly, and completing my presentation with the cash flow statement. As I said before, the first half was very good in terms of cash flow, almost EUR 23 million more than compared to first half ’21. Again that’s clearly the real metrics we are looking for. In any case, that’s the metric that we are going to protect in case of negative, let’s say, outlook should come around during the next quarter. Clearly the first half has not been yet, I would say, affected by any of the extraordinary or one-off elements that are going to affect 2022. I mean the dividend payment that has been paid 1 week ago and also the financial cash out coming from the tender offer in Spain of around EUR 185 million. These 2 elements will be clearly recorded and accounted in the third quarter 2022, but we are confirming that in any case, at the full year, so at the year-end, our net debt-to-EBITDA ratio will remain around 1x. So in a pretty solid and safe positions. I have completed my presentation, and I’ll leave room for the Q&A session. Thank you. ================================================================================ Questions and Answers ——————————————————————————– Operator  ——————————————————————————– (Operator Instructions) The first question from Fabio Pavan from Mediobanca. ——————————————————————————– Fabio Pavan, Mediobanca – Banca di credito finanziario S.p.A., Research Division – Research Analyst  ——————————————————————————– I would start, if I may, with an update on your pan-European ambitions. The Spanish deal has been completed. We have been reading recently on the press about potential interest for French and Swiss. So my question is, could you tell us something about this potential interest and in particular, I would say, without any specific reference to Swiss, how are you aiming to approach your pan-European expansion? Can we consider a preference for pay per deals or you might be also considering cash offers for some specific assets? Thank you very much. ——————————————————————————– Marco Giordani, MFE-Mediaforeurope N.V. – CFO, Central Manager of Administration, Finance, Control & Business Development & Executive Director  ——————————————————————————– Thank you, Fabio. I mean, no big changes in that respect. I believe personally that what is happening on the macros, it’s only, let’s say, helping all the actors to do something. So I believe that staying still in this period is probably more expensive, if I can say, than 1 or 2 years ago. So we are always more and more convinced about the growth. We think that we need a scale to compete in the advertising digital market in Europe, not only in Italy and Spain. And I believe that the traditional advertising market in Europe, so not only in Italy and Spain, will face probably not a very good time, but we think that we have room to grow mainly in digital, but we need to change things and to change the approach to become a real alternative to the digital — global digital player. Having said that, in practical terms, as you can imagine, I mean, we cannot comment anything on what happened, on what has been disclosed by any newspaper. But certainly we will be on any dossier that will allow us to grow in terms of size, not only in the country we are, so Italy and Spain, but also mainly outside Italy and Spain. So all the opportunity will be evaluated and certainly will be, let’s say, our duty to challenge and to fight for getting assets that will allow us to complete our growth strategy. Let’s say, in terms of currency, I think that the MFE structure currently is giving a great flexibility in all terms. So we can really use everything. So we are now with all the tools to complete — all the financial tools to complete our strategy. I have to say, frankly, that today, so looking at where the MFE share might be, excluding any use of paper also because the value of it is so low that frankly, for us, that will be more expensive, more than cash. And so clearly, without entering into any detail on any kind of project, I can tell you that as of today, paper of share is not an option because of the share value of Mediaset. And that’s also coherent with the fact that, as you know, we are buying back shares for the same reason. So it would be a little bit contradictory to use paper in the moment in which we are buying shares also. Currently share for growth as of today, it’s not an option. ——————————————————————————– Operator  ——————————————————————————– (Operator Instructions) And the next question from Sarah Simon from Berenberg. ——————————————————————————– Sarah Simon, Joh. Berenberg, Gossler & Co. KG, Research Division – Analyst  ——————————————————————————– I’ve got 2 questions. The first one was on the audience growth. What are you measuring there? Is that share or people or minutes consumed? So that’s the first question. Second one is inflation. Obviously, you’ve talked about energy prices and so on. I’m wondering what you’re thinking — or first of all, what we — what you’ve done in terms of salary increases for this year and what you’re thinking for next year. And in terms of the impact on the top line, are you passing any of this on to your advertising customers in the form of higher rates? So if you could talk about that; that would be helpful. ——————————————————————————– Marco Giordani, MFE-Mediaforeurope N.V. – CFO, Central Manager of Administration, Finance, Control & Business Development & Executive Director  ——————————————————————————– I’m starting from the easy part of the question, and then I’ll leave to Matteo to answer to the rest. Now as far as cost is concerned, I mean, frankly, as of today, we are getting only energy, let’s say, cost increase, as you can imagine, it’s pretty material. As I told you, it was EUR 15 million in the first half. And as you can imagine, will be more than double for the remaining part of the year. So that’s a certain, let’s say, cost increase that we have to compensate somewhere else. As far as cost of labor is concerned, on the other hand, for the time being, national and integrated Mediaset contract is not really trending any unit cost. But I believe that the pressure will increase not only to Mediaset and that’s — not only to Italian and Spanish company, I believe, everywhere in Europe. So the — even if it’s not really affect in  so I can say that everything is completely manageable and we can compensate it with any kind of pressure in that respect. We are expecting pressure coming through in 2023 if inflation will not come down to the traditional level. Lastly, there are some other costs like, for instance, rents that are maybe linked to CPI that is not affecting 2022, maybe could affect 2023 rightly. But again, it’s our duty to manage from the commercial point of view this kind of increase, maybe renegotiating contracts and also compensating with other cost savings. Broadly I would say that out of the EUR 1.8 billion, the exposure to inflation is very limited because, as you can imagine, content costs are more affected by competition than from CPI. And in any case, this will affect our P&L in a very long-term. So if nothing really happened in a few months and we are expecting probably a way back to normality, not so far away from here. And Matteo can answer you on the — let’s say, revenue side. ——————————————————————————– Sarah Simon, Joh. Berenberg, Gossler & Co. KG, Research Division – Analyst  ——————————————————————————– Marco, can I just ask one extra thing, which is how much of your one point — how much of your programming costs are you buying in dollars at the moment? ——————————————————————————– Marco Giordani, MFE-Mediaforeurope N.V. – CFO, Central Manager of Administration, Finance, Control & Business Development & Executive Director  ——————————————————————————– EUR 150 probably. ——————————————————————————– Sarah Simon, Joh. Berenberg, Gossler & Co. KG, Research Division – Analyst  ——————————————————————————– Dollars or euros? I mean, I know that’s the same number now, but it’s probably not the same number when you both — ——————————————————————————– Marco Giordani, MFE-Mediaforeurope N.V. – CFO, Central Manager of Administration, Finance, Control & Business Development & Executive Director  ——————————————————————————– Yes, because that’s in euros. So in the — they are mainly investments. So in the CapEx, you have rights acquisition and rights acquisitions are currently in the range of EUR 150 yearly from U.S. ——————————————————————————– Sarah Simon, Joh. Berenberg, Gossler & Co. KG, Research Division – Analyst  ——————————————————————————– And those will be amortized over the next kind of multiple years, obviously? ——————————————————————————– Marco Giordani, MFE-Mediaforeurope N.V. – CFO, Central Manager of Administration, Finance, Control & Business Development & Executive Director  ——————————————————————————– Yes, at least 5 years. And currently these effects are not yet in the P&L. So the effect of the movement of the dollar-euro exchange rate is not yet in the P&L because, by policy, we are committing ourselves to cover all the currency risk at the time of the commitment. So currently we are accounting things that we have committed ourselves to buy at least 1 year ago, and the dollar-euro rate has been fixed at that time. And so we are not really finishing any cost in the present P&L. Clearly going forward for the new commitment, we are now accounting dollar at EUR 1, roughly, and that clearly will affect our P&L in the next 5 to 6 years. ——————————————————————————– Sarah Simon, Joh. Berenberg, Gossler & Co. KG, Research Division – Analyst  ——————————————————————————– Yes. Okay. ——————————————————————————– Matteo Cardani, MFE-Mediaforeurope N.V. – MD of Publitalia  ——————————————————————————– Okay. It’s my turn and I address the audience metrics question. I really thank you for the questions — for this question because it gives me the opportunity to clarify on this point. So our standard metrics regarding audience, of course, is share. And this is the standard metrics with regard to linear TV audience. With regard to this, we don’t have a chart in the presentation, but I had mentioned the fact that we are around 41%. We are growing plus 2.8 points year-on-year. And I’d like to give you a technical note for all of you that are analyzing the audience share trend on linear television, please, take care, pay attention because Auditel in the total audience development has restructured the basis of linear TV measurement and following more or less the same path of BARB in U.K. In U.K., they took out all the unmatching viewing. So viewing that is not related to TV broadcaster, they took it out. And so now you have a new time series and if you do a comparison year-on-year, you have to take the new time series into account. Otherwise you compare the new metrics with the previous one, you may get wrong results. So the real trend plus 2.8 points year-on-year. And this is, let’s say, a competitive metric that gives you the idea of the power of your content offer on television. But in the total video age, the most relevant metrics are AMR, so average minute ratings, including both linear and nonlinear viewing. That is why we remarked plus 3.1% in audience growth. And coming back to Chart #18, the other key metrics market is looking for is additional reach. I did not comment on the additional audience contribution. But if you come back to Chart #18, you see that mainly on light viewers, connected TV and digital screens are adding from plus 2% to plus 5% in average minute ratings. And this is a good proxy of the average contribution of additional reach the digital screens are adding to our plan. And there is the law in media plan in that for the extra mile, for the extra reach, there is an incremental CPM you are willing to pay to reach these precious light TV viewers. So let’s say that we use the full set of metrics. So share on linear, AMR on the total video combined and the next metric we are waiting for Auditel to release is the total reach metrics. So I hope to have fully addressed your question. ——————————————————————————– Sarah Simon, Joh. Berenberg, Gossler & Co. KG, Research Division – Analyst  ——————————————————————————– Yes. Sorry, can I just clarify? So on Slide 10, the 1.1% is share of linear audience. ——————————————————————————– Matteo Cardani, MFE-Mediaforeurope N.V. – MD of Publitalia  ——————————————————————————– No, no, no. ——————————————————————————– Sarah Simon, Joh. Berenberg, Gossler & Co. KG, Research Division – Analyst  ——————————————————————————– The total audience, no? ——————————————————————————– Matteo Cardani, MFE-Mediaforeurope N.V. – MD of Publitalia  ——————————————————————————– No, no. It’s the average minute rating. So I thank you for this. Note that we should write it down in the footnote of the final version on this presentation because after it is missing. But this is average minute ratings. It means that in an average minute, you have plus 1% people watching our linear channels compared to 2019; that is our North Star for any comparison. So because this is what the market is looking for, and this is what the market is paying for, okay. They are interested in share, but we all are experiencing a decline in total audience in linear television. So what the market is willing to pay for is the absolute value of eyeballs you are delivering. So we are plus 1.1% on linear screens and then adding another additional 2.0% on — ——————————————————————————– Sarah Simon, Joh. Berenberg, Gossler & Co. KG, Research Division – Analyst  ——————————————————————————– Three percent from the extra? ——————————————————————————– Matteo Cardani, MFE-Mediaforeurope N.V. – MD of Publitalia  ——————————————————————————– Exactly. ——————————————————————————– Sarah Simon, Joh. Berenberg, Gossler & Co. KG, Research Division – Analyst  ——————————————————————————– Okay. And then the Slide 11, the individuals plus 1.4%, that’s the extra reach? ——————————————————————————– Matteo Cardani, MFE-Mediaforeurope N.V. – MD of Publitalia  ——————————————————————————– Yes. It could be — it is a proxy of extra reach. It’s additional AMRs coming out from the total audience. The point is that for the time being, we are able to deliver our own total reach measure to clients. The last mile of the total audience project by Auditel is to release these metrics to the market from — to the end of this year or at the very latest beginning of 2023. ——————————————————————————– Sarah Simon, Joh. Berenberg, Gossler & Co. KG, Research Division – Analyst  ——————————————————————————– Okay. Perfect. And, sorry, the final question was on inflation and pricing. ——————————————————————————– Matteo Cardani, MFE-Mediaforeurope N.V. – MD of Publitalia  ——————————————————————————– Sorry. Could you remind me because I got lost, sorry? ——————————————————————————– Sarah Simon, Joh. Berenberg, Gossler & Co. KG, Research Division – Analyst  ——————————————————————————– If you just — are you — so I was with a media only yesterday, we were talking about price increases, where they are passing in — so higher CPM rates to reflect inflation that they are passing some of that on. Are you passing on higher cost inflation in the form of higher CPM pricing to your customers? ——————————————————————————– Matteo Cardani, MFE-Mediaforeurope N.V. – MD of Publitalia  ——————————————————————————– Generally speaking the inflation that we are, let’s say, delivering to the market, the media inflation is not related, of course, to the general cost inflation. It’s mainly related to main drivers. The first thing is that we, as Mediaset, all the Italian TV broadcaster over the past 2 years gradually recover the CPM level they had before COVID outbreak in 2020. And on the other hand, of course, generally speaking, adding linear audiences declining or not growing a good part of our revenue growth is, of course, linked to rate card increase. But one could ask, okay, about why the market is willing to pay an increase (technical difficulty) In rate mainly because we still are the building block — the milestone to build the first level of reach in any media plan. So the rich linear television or total linear delivered by broadcaster is the higher — the highest reach you can buy on the market. And for the sake of that we are able, for the time being, I’m crossing my fingers, to deliver this gradual on our hand, moderate, low single-digit rate card increase on our offer — in our offer. On top of that, the fact that our inventory in digital is growing more and more mainly driven by connected television that commands a higher CPM and the market is willing to pay for that because it’s highly viable and very well will likely be viewers. And on top of that, the user experience on connected television, as you know, is the lower cluttering, so to some extent, is a better advertising experiences with (inaudible) or — and that’s it. Hope to have a fullyâ€¦ ——————————————————————————– Operator  ——————————————————————————– (Operator Instructions) The next question is from Thomas Singlehurst from Citi. ——————————————————————————– Thomas A Singlehurst, Citigroup Inc., Research Division – MD & Head of European Media Research  ——————————————————————————– Yes, Tom here from Citi. Hopefully you can hear me. First question is on advertising again. I suppose we would normally expect advertising to be a lead indicator of economic pressure. And you explained why you think that’s maybe not coming through in exactly the same way as we would have expected. I’m just interested whether sort of upstream, if that’s the right way of putting it, you think there are any sort of shifts in ad budgets that are driving that sort of extra element of resilience in advertising? So for example, our traditional advertising budgets based on your conversations, pulling share from promotional activity or other areas of sort of traditional marketing activity. I would say, just trying to get a sense of whether there’s any other sort of shifts in the marketplace that are driving this sort of surprising level of resilience in the context of what appears to be a very, very uncertain macro environment. That was the first question. And then the second question is on the cost side. You’re very clear about — I think it was EUR 1.8 billion of operating costs for the full year. Firstly, I just wanted to double-check what level of revenue that was predicated on. And then just more broadly, how much flex in revenue could you just have offset by short-term cost actions? Or put another way, what movement in revenue is too much for you to actually offset in terms of — is too much to offset via tactical sort of cost reductions? ——————————————————————————– Marco Giordani, MFE-Mediaforeurope N.V. – CFO, Central Manager of Administration, Finance, Control & Business Development & Executive Director  ——————————————————————————– Yes. So I’m starting from the last part. I mean first of all, you have to consider that we never work for the next quarter. So it’s hard today to see the future and certainly in terms of trend, so negative or not negative, but it’s also very difficult to foresee how long the possible negative cycle will last because as I tried to explain before, I mean, media is made by, let’s say, relevancy. And so for instance, just cutting all the programming for the next quarter would be certainly helpful for the results of next quarter, but probably would jeopardize our strategic position for the long run. So it’s always a balanced decision, the one that you have to take. There are costs that you can cut without any impact on your strategic positioning on the medium term, and there are other that maybe you can cut, but you don’t want to cut because otherwise when the market will recover, you will not be in the same position where you are now. So all in all, trying to be very practical. Our base case scenario is the scenario where the full year total advertising revenue will be negative by a couple of points. So that’s our base scenario. We are clearly having also on the EUR 1.8 billion some 2%, 3% flexibility in that respect. But as I told you before, we are really acting in the short term. We don’t want — I mean, Matteo explained how good our audience are, frankly, very remarkable because — and I’m repeating what Matteo was saying. We are able to deliver more eyeballs than in 2019. In 2022, after having read throughout Europe the decline of linear audience, but that’s, in my opinion, it’s a great result of our editorial people and also a great result also coming from a decision we took in terms of technological and digital part. So we don’t want to lose that leadership. So we certainly don’t want to lose the leadership in terms of eyeballs in Italy, just to save one quarter. So 2022, frankly, it’s almost over. I don’t think that EUR 10 million more or less in EBIT, we’ve really changed our history. We need to be carefully projecting 2023 because 2023 will be a very important year because we hope that any negative part of the cycle we land and will be important to be setting the right way to benefit from the growth because, again, if you look at what happened in — during COVID, we were very good in managing COVID time fair enough, but I believe we were even better in managing the recovery because do not forget that in 2021, our revenue, advertising revenue was already more than pre-COVID level. So our intention is to protect cash during the negative part of the cycle, but more than that, we want to be stronger when the cycle will revert in order to capture the growth that in many case, we can. So that’s, sorry, a pretty long answer, but we are not really targeting the best performance in the next quarter. We are trying to plan and to set Mediaset and Mediaset Espana in the best way to capture the growth at the end of the negative cycle we’ll face. So I hope that I answer to your questions. ——————————————————————————– Thomas A Singlehurst, Citigroup Inc., Research Division – MD & Head of European Media Research  ——————————————————————————– Yes, that’s perfect. And any views on some upstream share? Is — are we seeing a shift from promotion to advertising? Is there anything elseâ€¦ ——————————————————————————– Matteo Cardani, MFE-Mediaforeurope N.V. – MD of Publitalia  ——————————————————————————– Thank you, Thomas, and I’ll try to answer this question. Honestly, it’s quite difficult because it depends from sector to sector. So I mean, just to give an idea, the food sector is definitely under pressure. They have a cost pressure and margin pressure. They are not able to fully transfer this to the retail price. And for sure, this has contributed to down weight in advertising expenditure in that sector. But for example, on the other hand, coming to the automotive sector, we see that anyway, despite the fact that the sector is still not recovering. The — all the major manufacturers and all the major brands are present on advertising, and we can fully catch these — get these, thanks also to our very extended football offer because they need to communicate it because we are in the middle of the electric hybrid transition. So they must communicate. What I can tell you that, generally speaking, just last — yesterday, the president of the union of the Italian advertisers said that they have a moderate expectation for this year. So something like minus 1%, minus 2% in general trend and all the advertising are aware of the importance of maintaining a certain baseline in advertising. And coming back to inflation, those advertisers that are obliged to increase the retail prices, their consumer prices are fully aware that they need advertising to allow for these price increases. So advertising is a sort of a smooth lever in order to make price increases acceptable on the consumer side and not to be, let’s say, hostage of distribution. So this is the my view, my understanding of the market. So not a general answer, but you should consider from sector to sector. So that fit, I hope. Thank you. ——————————————————————————– Operator  ——————————————————————————– (Operator Instructions) The next question from (inaudible). ——————————————————————————– Unidentified Analyst,  ——————————————————————————– Hello. I actually had the same question on the cost base. So all good from my side. Thank you. ——————————————————————————– Operator  ——————————————————————————– (Operator Instructions) And the next question is from Stefano Gamberini from Equita. ——————————————————————————– Stefano Gamberini, Equita SIM S.p.A., Research Division – Analyst  ——————————————————————————– First of all, regarding your strategy, what could we expect about Mediaset Espana integration, the next steps that you have in front of you on this for the integration with this company? And if the integration could help for some savings in — during 2023 or not? The second, you said you are all — on all the dossier in the sector. But considering that you can’t use your paper, what is the firepower that you have? And also on this topic, if you can spend a few words about your other commitment, the first, you are moving in a buyback, but the second most importantly, your payout policy. So you said you will distribute at least 50% of the consolidated adjusted result, but also taking in account the level of leverage. So what is a level of leverage that is reasonable in your view? And so as a consequence, what is this firepower that you have? The second question regarding the Slide #18 underlining that the cash generation was relevant, but there is the change in net working capital, which accounts for around EUR 144 million. Is this a one-off? This figure will be reabsorbed during the second part of the year or not? And what is the main driver of this positive result? And lastly, as usual, as regard to EI Towers. Now there is a new majority, probably something could happen also on this dossier. What is — you already said in the past year that this is not a strategic stake. So what is in your view the best way to extract maximum value from the stake in EI Towers? ——————————————————————————– Marco Giordani, MFE-Mediaforeurope N.V. – CFO, Central Manager of Administration, Finance, Control & Business Development & Executive Director  ——————————————————————————– So we should need another hour to answer, in any case, Stefano. ——————————————————————————– Stefano Gamberini, Equita SIM S.p.A., Research Division – Analyst  ——————————————————————————– No, very briefly. ——————————————————————————– Marco Giordani, MFE-Mediaforeurope N.V. – CFO, Central Manager of Administration, Finance, Control & Business Development & Executive Director  ——————————————————————————– No, no, no. Clearly, I’ll try to answer everything. If I forgot something, please remind. I mean, as far as Mediaset Espana is concerned, I mean, I believe that everything is written in the info memo. As is actually written in the info memo, we are in a cooling down period, if you want, we cannot do anything because we committed ourselves to do it. So we are in a business which we cannot do almost anything on shares. We are very happy with our 83% controlling shares that is, in any case, already pretty advanced. So we have not decided. We will see once the full account period will end. So in January, we will decide depending on everything that is happening around us. As far as synergies, I remember that in the info memo, EUR 55 million synergy was the target. We also wrote and declared there that clearly without delisting the process of getting these synergies would be lower, as you can imagine, because the integration cannot be done fully. You cannot really carry out a full integration with the organization, but we are already working with our Spanish colleagues to see mainly in the revenue side whether we can really enhance performance, applying everything we always said regarding the opportunity on the digital advertising market that the teams — the 2 teams are already in place, and they are really starting what they can really attract more with supranational and integrated digital offer. But as we wrote in the prospectus, clearly, since we will progress in parallel with the integration on the possible integration with the shares. Payout, again, as written in the info memo, we have committed ourselves to pay out at least 50% of our net profit. So that’s our statement as far as the numbers, clearly. We have to wait, but I repeat our commitment of 50% payout for the future. In terms of firepower, I mean, we are pretty solid in terms of net debt as we said. And we are also pretty solid in terms of tenure and duration of our financing facility. And our covenants in the facility, in the committed facilities are allowing us more or less EUR 1 billion firepower without, let’s say, taking in account any EBITDA of the target, so to say, if we are buying an asset that is producing EUR 100 million EBITDA clearly is giving us additional firepower because our covenants are EBITDA-related. Regarding change in working capital, I mean, that’s part of seasonality on one side and also advertising market trend in the sense that last year, we were in a pretty, let’s say, high growth scenario. So when the revenue are going up strongly, clearly, we are absorbing, but we are, let’s say, absorbing cash and working capital, as you can imagine, because we are cashing our advertising investment after. And now we are exactly in the opposite scenario. We are accelerating and the accelerating scenario is clearly producing cash because clearly, we are cashing turnover in a growth period while the present period is decelerating a little bit. So the comparison of the 2 years is affected by a completely different revenue times. And so that will be clearly re-stabilized as soon as trends are becoming homogeneous between 2 exercises. As far as EI Towers is concerned, I mean, sorry, but I mean clearly, our — I cannot answer in the sense that I believe it’s a question to pose more in the RAI/government/Ministry of Finance area in the sense that you know our position that has always been the same, and I believe it’s also the same position that (inaudible) in respect to everybody. Clearly election, I think, is sort of a cool-down period, in which clearly everything has been a little bit squeezed. I believe that things can restart or — in one way or the other, we don’t know, as soon as the new government will be in place. So for the time — in the short term, I’m not expecting anything. And then we see what the government and RAI want to do in that respect even if clearly the structure of probable RAI, the ones that we all know, they need money, so either they finance their budget through some sales of assets or the government will put more money in RAI in other ways, so that’s structurally the choice they have. I really have to ask to say what we did this year. I believe I answered everything. I don’t know, Stefan? ——————————————————————————– Stefano Gamberini, Equita SIM S.p.A., Research Division – Analyst  ——————————————————————————– Yes. Many thanks. A quick clarification. As regard to your stake in EI Towers and if the consolidation will go ahead, your stake in the new RAI EI Towers, you can say. Are you still interested to dispose this asset mistake in order to monetize? Or so this could be a sort of finance for you? Or otherwise, you are changing your mind on this topic? ——————————————————————————– Marco Giordani, MFE-Mediaforeurope N.V. – CFO, Central Manager of Administration, Finance, Control & Business Development & Executive Director  ——————————————————————————– Really, we are very interested and focused in maximizing the value of our stake. Then when the value is there, monetizing it or not, we see it’s also depending on the opportunity to reinvest the cash or there are many, many things we have to consider in that event. Now we are really focused on synergies. We think that, let’s say, combining the 2 assets, we all shareholders, we can generate a huge amount of synergies and clearly value. And that’s the main target we are aiming. Once that this target will be achieved, we will see what to do with these stakes. ——————————————————————————– Operator  ——————————————————————————– (Operator Instructions) And the next question is from Andrea Randone from Intermonte. ——————————————————————————– Andrea Randone, Intermonte SIM S.p.A., Research Division – Research Analyst  ——————————————————————————– My questions have been partly answered. So just a quick comment, if you may provide on the current trading, especially advertising? ——————————————————————————– Matteo Cardani, MFE-Mediaforeurope N.V. – MD of Publitalia  ——————————————————————————– Hello. Thank you, Andrea. So I’ll try to address your question. So with regard to current trading, so we are mainly talking about Q3 year-on-year performance. We knew in advance at the beginning of the year before the war outbreak that Q3 year-on-year comparison would have been a tough comparison with the 2 previous years. I’m saying this because Q3 ’20 and Q3 ’21 for us as Mediaset, but let me say, for the whole market and mainly for television were 2 exceptional quarters in terms of revenue collection. I underline — I remark exceptional because I may be wrong, but probably out of the last 8, 10 years, probably they were the highest Q3 and this was due to a unique combination because you had for 2 years in a row, the positive rebound effects after spring lockdowns in ’20, in ’21. And in summer, you had the additional effect of sport events, in Q3 ’20 you had, okay, Serie A moving to summer, and we had the Champions League in August. And again, in Q3 ’21, we had the Euro and Olympics that create, let’s say, an exceptional situation, accelerating advertising expenditure. So we knew in advance that it was a tough comparison, and that is why I said a remark 2x the fact that for us, the North Star, the benchmark is 2019. And that said, despite the deteriorating macroeconomic conditions, we expect to close Q3 ’22 not so far from pre-COVID level Q3 ’19 in terms of advertising collection. The positive note is that after a negative comparison year-on-year in July and in August, extending also to the first part of September. In the last 10 days of September, the trend is improving and that we have a positive performance year-on-year. Luckily regarding the outlook for the last part of the year, at this stage, we don’t have a clear visibility on Q4 and with us probably no one in the market for the time being because companies, advertisers are continuously reallocating their budget from weeks to weeks. But I can say that we are quite, how to say, cool and not concerned because what is going on is that the sector dynamics we commented before is going higher. So the growing sectors in the 9 months are still growing around 10%, slightly the 10% or has a slow single-digit and probably automotive has stopped, is declining. So we are not concerned also because our offer is strong, the autonomous TV programming has started and the season has started quite well. And again, not only in terms of share, but in terms of absolute values of (inaudible) as commented before. And we are quite, let’s say again, cool with regard to last — the World Cup event because, unfortunately, we will be spectator of other countries, missing our national football team. This, of course, we expect the commercial appeal of the competition will be significantly lower. While on the other hand, we are still keeping all our offer in November and December very well aligned in terms of TV programs. And so we do expect to prepare a very good, let’s say, baseline level for the last part of the year. So this is the picture we have now in front of us. So I hope I have answered and I thank you. ——————————————————————————– Sara Bersan,  ——————————————————————————– Thank you, Matteo, and thank you, Marco, and thank you, guys, for all the questions and for taking the time for the conference call today and for taking the time for the conference call — for any questions or information you would like to ask. Have a good day. Bye. ——————————————————————————– Operator  ——————————————————————————– That concludes the conference for today. Thank you for participating. You may all disconnect.