ProSiebenSat.1 Q3 revenue down 13%
November 15, 2022
In the third quarter of 2022, ProSiebenSat.1 Group generated Group revenues of €921 million, down 13 per cent (previous year: €1.055 billion), in what is called a “challenging market environment”.
Adjusted for currency effects and excluding the revenue contributions of portfolio companies recently disposed, such as the US production business of Red Arrow Studios as of July 1st 2022, the German Group’s revenues amounted to €920 million, down 9 per cent or €86 million on the previous year’s figure (previous year: €1.007 billion). The total deconsolidation effects amounted to €78 million in the third quarter. In addition, revenues were significantly influenced by the macroeconomic environment in the region of Germany, Austria and Switzerland, which is characterised by persistently high inflation and increasing consumer restraint. This particularly affected the advertising market. The deterioration of the overall economic environment in the German-speaking region also had an impact on the companies of NuCom Group, which are reported in the Commerce & Ventures segment, with end customers thus using their offerings to a lower extent in the third quarter. The strong comparative quarter of the previous year also played a role: Group revenues were at a record high in the third quarter of 2021, when the advertising market in particular rapidly and dynamically recovered from the effects of the pandemic.
From January to September 2022, ProSiebenSat.1 recorded Group revenues of €2.930 billion (previous year: €3.041 billion) and thus a decline of 4 per cent. Organically, the revenue decline amounted to 2 per cent – and therefore remained almost stable in a market environment that became increasingly difficult over the course of the year. With this, the Group confirms the preliminary quarterly figures that ProSiebenSat.1 already published on October 27, 2022.
As of October 31st 2022, ProSiebenSat.1 also fully acquired the streaming platform Joyn and transferred it to the Entertainment segment as a wholly owned subsidiary. The Group is now expanding Joyn into the first port of call in its digital ecosystem. ProSiebenSat.1 is also placing a stronger focus on interaction with and between users – for example with the social entertainment app JoynMe, which is based on ParshipMeet Group’s vPaaS technology.
Ralf Peter Gierig, Member of the Executive Board and Group CFO of ProSiebenSat.1 Media, said: “The market environment has become increasingly difficult over the course of the year due to inflation, the energy price crisis and consumer restraint. It is especially in these times that we are systematically pursuing our transformation. We are investing in the digital future of our Group. As an early-cyclical company, we are thus very well positioned to benefit directly from an economic recovery, especially in the advertising market. That is precisely why the full takeover of the streaming platform Joyn was the right step. It plays a central role in our digital Entertainment strategy. Our aim is to develop Joyn into the largest freely accessible streaming platform for premium video content in the German-speaking region, to further expand our digital ecosystem and thus to create additional monetisation opportunities. We are convinced that this strategy is taking us in the right direction.”
Operating performance
In the third quarter of 2022, external revenues in the Entertainment segment declined by 15 per cent to €621 million (previous year: €728 million). Organically, segment revenues declined by 9 per cent. In view of its focus on synergies, the Group disposed the US production business of Red Arrow Studios as of July 1, 2022, and already sold the film distributor Gravitas Ventures in November 2021. In the previous year, these companies had still contributed segment revenues of €54 million and €9 million, respectively. In addition to these deconsolidation effects, segment revenues were influenced by lower advertising revenues due to the difficult macroeconomic environment. Additionally, the advertising market also had benefited from considerable catch-up effects from the pandemic in the third quarter of the previous year. In the third quarter of this year, Entertainment advertising revenues in the German-speaking region decreased by 10 per cent to €430 million (previous year: €479 million). In total, advertising revenues in the segment decreased by 5 per cent year-on-year. However, in a multi-year comparison, they exceeded the 2019 and thus pre-pandemic revenue level. The growth driver in this comparison was the digital entertainment offering with platforms such as Studio71.
In the first nine months of the year, the segment’s external revenues decreased by only 2 per cent to €2.032 billion (previous year: €2,075 million), while the segment’s advertising revenues recorded slight growth of €6 million. Hereby, the Entertainment advertising revenues in the German-speaking region decreased by €35 million. Organically, external revenues between January and September exceeded the previous year’s figure by €7 million.
In the Dating & Video segment, external revenues in the third quarter of 2022 were stable year-on-year at €129 million (previous year: €129 million).
In the first nine months of the year, external revenues of €391 million were 4 per cent below the previous year (previous year: €409 million). Adjusted for currency effects of €34 million, the decline in revenues was 12 per cent: The first quarter of 2021 was the strongest quarter to date for the Dating & Video segment. On the one hand, this was due to the positive effects of government stimulus in the US. On the other hand, the pandemic and the related restrictions on public life stimulated the dating industry and especially the usage of live video. Compared to 2019, i.e., the comparable period before the outbreak of the pandemic, the segment grew by an average of 9 per cent per year on a pro forma basis in the nine-month period.
External revenues in the Commerce & Ventures segment decreased by 14 per cent to €170 million in the third quarter of 2022 (previous year: €198 million). Organically, and therefore in particular without the revenue contributions totalling €12 million from Amorelie and moebel.de disposed in 2021, revenues declined by 8 per cent or €15 million. At the same time, the segment was affected by the economic environment: The development of the comparison portal Verivox was significantly impacted by the effects of the Russia/Ukraine war on the energy market. Here, the sharp rise in energy prices negatively affected the switching dynamics, which are important for the Verivox business model. In addition, the media-for-equity and media-for-revenue business of SevenVentures declined compared to the strong previous-year quarter, which reflects the weakening in the advertising market.
In the first nine months of the year, the segment’s external revenues declined by 9 per cent to €507 million (previous year: €558 million). However, organically, external revenues were almost at the previous year’s level with a decline of 2 per cent.
The macroeconomic impact also affected the Group’s adjusted EBITDA, which declined by 27 per cent to €118 million in the third quarter of 2022 (previous year: €162 million). On the one hand, the high comparative figure from the third quarter of 2021 was characterized by catch-up effects in the Entertainment segment as a result of the pandemic. Meanwhile, lower revenues in the high-margin advertising business and the development of the comparison portal Verivox also had an impact here. Hereby, ProSiebenSat.1 has already countered the development of the advertising market with reduced programming expenses. In the nine-month period, adjusted EBITDA decreased by 13 per cent to €407 million (previous year: €470 million).
The now predicted persistently high inflation, the energy price crisis and the resulting reluctance to consume are also impacting the growth prospects of the Group’s Commerce & Ventures segment, as a large proportion of these businesses are directly dependent on macroeconomic developments due to their focus on end consumers. As already communicated on October 27, 2022, ProSiebenSat.1 therefore recognised a one-time, non-cash impairment on assets, in particular of goodwill, of the cash-generating unit NuCom Group, which is reported in the Commerce & Ventures segment, of €312 million in the third quarter of 2022. This impairment has no impact on the Group’s adjusted net income, which is the key indicator for ProSiebenSat.1’s dividend policy.
Primarily as a result of the development of adjusted EBITDA, the Group’s adjusted net income declined to €43 million in the third quarter of 2022 (previous year: €58 million); adjusted operating free cash flow amounted to €38 million (previous year: €134 million). However, in a nine-month comparison, adjusted net income of €153 million was only €5 million below the previous year’s level; adjusted operating free cash flow decreased only slightly to €292 million (previous year: €303 million). The decline in adjusted EBITDA and the lower consumption of programming assets were almost fully offset by lower investments in US licensed programming.
The Group’s net financial debt amounted to €1.739 billion as of September 30, 2022 (December 31, 2021: €1.852 billion; September 30, 2021: €2.111 billion). This is an improvement of €372 million compared to the end of the previous year’s quarter or of €113 million compared to the end of 2021. Compared to September 30, 2019, i.e., the pre-pandemic level, ProSiebenSat.1 was even able to reduce its net financial debt by €849 million. Leverage ratio therefore also improved compared to September 30, 2021: At 2.2x, it is clearly within the target range of 1.5x to 2.5x despite the €70 million higher dividend payment than in the previous year (December 31, 2021: 2.2x; September 30, 2021: 2.5x).
This once again underlines the consistent reduction of the Group’s debt. ProSiebenSat.1 practices an active financial management. In October 2022, the Group therefore exercised its termination right for promissory notes totalling €275 million, issued in 2016, and will prepay the notes, originally due in December 2023, already on December 1st 2022. The prepayment will be made from available cash. Afterwards, the Group will have no repayment obligations or need to refinance financial liabilities before 2025. ProSiebenSat.1 is thus further reducing its gross debt and is solidly positioned for the long-term.
Outlook
The macroeconomic environment in the German-speaking region has been characterised by persistently high inflation and increasing consumer restraint as a result of the Russia/Ukraine war. Currently, the fourth quarter of 2022 therefore shows signs of a more pronounced weakened macroeconomic environment than initially reflected in the previous full-year outlook of ProSiebenSat.1 Group. Traditionally, Q4 is the most important quarter of the year for ProSiebenSat.1 in terms of full-year revenues and contribution to earnings (Q4 2021: adjusted EBITDA of €370 million). Against this backdrop, the Group updated its financial targets for the financial year 2022 on October 27th 2022:
The Group continues to expect revenues of around €4.15 billion and adjusted EBITDA of around €650 million for the full-year, as already communicated on October 27, 2022. For the Group’s adjusted EBITDA, these expectations include negative consolidation effects from the full takeover of the streaming platform Joyn as well as positive effects from cost measures. At the same time, ProSiebenSat.1 assumes the Group’s high-margin advertising revenues in the German-speaking region of Germany, Austria and Switzerland to be presumably down around €130 million or around 17 per cent year-on-year in the fourth quarter (previous year: €776 million) and around €160 million or around 7 per cent down year-on-year for the full-year (previous year: €2.233 billion). This affects the Entertainment and Commerce & Ventures segments. Adjusted net income, adjusted operating free cash flow, P7S1 ROCE and leverage ratio will thus be below the previously communicated targets, following the update of adjusted EBITDA expectations.
ProSiebenSat.1 Group continues to aim to increase its revenues by an average of 4 to 5 per cent per year in the medium- to long-term, even though the macroeconomic environment is currently affecting these growth expectations. The Group is consistently driving forward its digital transformation and, as an early-cyclical company, is well positioned to be one of the first to benefit from an economic recovery, especially in the advertising market.