ProSiebenSat.1 Media SE

Ralf Gierig - Deputy CFO & EVP of Group Finance & IR Thomas Ebeling - CEO Jan Kemper - CFO Christof Wahl - COO

Christopher Johnen - HSBC Annick Maas - Liberum Capital Limited Lisa Yang - Goldman Sachs Group Patrick Wellington - Morgan Stanley Laurie Davison - Deutsche Bank AG Richard Eary - UBS Investment Bank Sonia Rabussier - Commerzbank AG Ruchi Malaiya - Bank of America Merrill Lynch Julien Roch - Barclays PLC

Good morning ladies and gentlemen and welcome to our Q2 H1 2017 results call also from my side. Today's call as always will be hosted by Thomas Ebeling, CEO.

Thomas and our CFO Dr. Dr.

Jan Kemper will first lead you through the presentation which was made available on our IR webpage and via the download link provided. The presentation will be followed by a Q&A session which will be joined by other executive board members, Christof Wahl; Conrad Albert; Jan Frouman; and Sabine Eckhardt.

With this I hand over to Thomas.

Yes, good morning ladies and gentlemen. I start on Page 3.

If we see first 6 months results we had 11% revenue growth, 8% adjusted EBITDA and 9% adjusted net income. With these results we're exactly in line with the required pro rata target in order to achieve our 2018 guidance which we have given to the capital market.

Very importantly on Page 5 you can see that our non-TV advertising business has since 2012 demonstrated superb growth rates and with these growth rates is already representing 50% of our total revenue. On the next page you see the composition of revenue across our 4 pillars, broadcasting which includes distribution here at 55%; production is almost 10% and we started basically to build this business in 2010; digital entertainment 11%, we started to build digital entertainment in 2012 and ventures in commerce 24% which we started really to build aggressively in 2014.

Despite driving our transformation so forcefully, we were able to as well gain TV leadership in the German market by the end of 2010 based on continued channel, we were slightly behind our main competitor and at the end of Q2 we're 2% points ahead of our main competitor. Page 8 is showing you our build-up in the Red Arrow.

I think the most important information is that more than 70% of the revenues of this business is coming already from the U.S. On Page 9 you see that in a short period of time we became a global leader in multi-channel networks which creates 7 billion video views per month.

Page 10 is for us very important. We're not a classical tech company and we're pleased that we have managed within 2 years to build a proprietary leading AdTech stack which is helping us to remain somewhat independent from the big U.S.

digital giants. The next page is showing some of our flagship digital commerce assets.

You see here 5 assets that we have leadership position and again we have built this business within 4 years and very importantly these segments are all showing with the exception of dating double-digit revenue growth rates, so they are clearly a driver for the growth of the group. We complemented this transformation through partnerships and on Page 12 you see our progress regarding the European media Alliance both in -- having started a joint venture with TF1 Mediaset for Programmatic Sales House and the co-investments of TF1 Mediaset into Studio71.

We have concluded two major U.S. cooperations with Discovery to start a joint online video platform in Germany and the Scripps to launch thematic TV windows and possibly at some point in time TV channels.

And last week we announced German Data Corporation together with RTL and United Internet, with Zalando being the first partner. We continued as well our portfolio transformation.

In the first half of this year we sold etraveli after more than doubling its enterprise value. We exited of selected certain ventures media for equity investments and we completed a bolt-on acquisition of Jochen Schweizer to create a leading experience platform.

With this, I would like to hand over to my colleague Dr. Jan Kemper, who will take you through the financials.

Thank you Thomas and also good morning from my side. Let me now walk you through the financial performance of the second quarter 2017 and also summarize our outlook for the full year.

Let's first have a look on the Q2 Q financials. Revenue grew by 9% to €962 million, at the same time adjusted EBITDA improved by 6% to €270 million.

That results in an adjusted EBITDA margin of 28% which is roughly in line with prior year. Financial result was at minus €26 million.

Please keep in mind that last year's financial result was impacted by the positive valuation adjustment to the shares in ZeniMax which explains most of the deviation to 2017. Adjusted net income increased by 9%.

Adjustments here include for example M&A expenses, the amortization of PP&A and impairment on other financial investments. Revenue growth in Q2 was driven 30% organically and 70% by recent acquisitions.

Moving on to the key financials of H1, revenues were up 11% to approximately €1.9 billion. Adjusted EBITDA increased by 8%.

Financial results at half year was at minus €37 million and close to last year based on various positive valuation effects totaling around €30 million we elaborated on in the first quarter 2017. Also in the first half year adjusted net income increased by 9% and revenue growth in the first half was driven 43% organically and 57% by recent acquisitions.

Looking at our four segments, first of all our broadcasting German-speaking segment external revenues were down by -- slightly down by 2% in Q2 and flattish in H1 mainly based on the temporary negative net to the ad market in an overall negative H1 net ad market due to macro concerns and campaign shift into H2, as well as the incentivization of formerly external revenues from Parship. Distribution revenues however were up 14% in Q2, by 13% in H1, driven by an increasing HD subscriber numbers.

Including revenues with our growing digital portfolio, total revenues however were actually flat in Q2 and plus 2% in H1 2017.Adjusted EBITDA grew by 4% in Q2 as well as in H1 to €208 million and €345 million respectively driven by an efficient cost management, growing distribution earnings and internal revenues mainly related to media synergies. With regards to our digital entertainment segment, external revenues were flattish in H1 and slightly negative in the second quarter.

However organic revenue growth was approximately 8% in Q2 and 10% in H1 as reported figures include the deconsolidation effect of the online games business as per end of Q2 last year. In terms of business units, our advertising video on demand business continued its dynamic development and grew by 15% in Q2, by 18% in H1, especially due to our multi-channel network Studio71.

Our pay -- video on demand business maxdome grew by 6% in H1 driven by its subscription business especially on the B2B side. The adjacent business with its music event and licensing business further declined reflecting an ongoing challenging market environment.

Adjusted EBITDA was up €7 million in Q2 after minus €2 million in the first quarter. Let's now have a look on our digital ventures and commerce segment.

It actually continued its dynamic development in the first quarter. Now in the second quarter with external revenues up 50% in Q2 and 52% up in H1, main growth drivers here were the Lifestyle Commerce and online dating segment or cluster fueled by last year's acquisitions where roughly 2/3 of the growth originated.

The dynamic revenue growth of the segment translated into a strong adjusted EBITDA growth of 58% in the second quarter and 40% in H1. Adjusted EBITDA margin came in at 20% in Q2 and H1 respectively.

Overall organic growth for the two digital segments combined was above 12% in H1, i.e., slightly below our full year target of 15% which should reverse towards the end of the financial year including ETI. Also our content production and global sales business had a successful quarter again with 15% external revenue growth and adjusted EBITDA growth of 10%, more than half of the reported revenue growth was organic with good performances from U.S.

and U.K., production companies namely Kinetic and Left/Right. In H1 also the global base business had an equally positive impact on the overall development based on the start of license fees for new productions and the sale of rights for -- to Amazon which had a one-time nature.

Adjusted EBITDA margin in Q2 came in with 13% in -- as well as in H1. Let me close the financial section of today's presentation with our financial target for 2017.

We herewith confirm our 2017 financial outlook of at least a high single-digit increase in revenues and again [indiscernible] in terms of adjusted EBITDA and adjusted net income, group revenue growth is expected to be at least 50-50 split between organic and inorganic. We continue to target financial leverage within the range of 1.5x and 2.5x and last but not least we reconfirm our anticipated dividend payout ratio of 80% to 90% based on adjusted net income.

And with this I would like to hand back to Thomas.

Thanks Jan. I will continue on Page 23.

So in contrast to other IR cost, we decided this time to instead of torturing you with another 200 pages on each pillar to focus on a few selected topics and let's see how this works. On Page 24 let me start with our portfolio management strategy.

On the left side you can see the 5 most important criteria of where we want to invest. I would like to highlight specifically the dimension of local hero potential.

We really don't like to compete head-to-head with Amazon or other U.S. digital giants and rather try to focus on business areas that we believe we can retain a strong local position, possibly a strong European position and that is driving the selection of the assets we buy and perfect fit for this strategy are certainly the Jochen Schweizer or the -- our dating group, Verivox would really be another perfect example and obviously Windstar.

Equally important is where we divest and the main driver is when we come to the conclusion that we're either not the best owner any more on and/or we can create significantly value. We believe that this was the case in the sale etraveli and in the selective assets of -- exit of some of our SevenVentures Media for equity portfolio and that was driving as well our decision to review -- complete the online travel sector.

The next page you see the business rationale for combining mydays and Jochen Schweizer. Please keep in mind that we understand this business vertical because of our ownership of mydays very well.

mydays is a leader in emotional experiences and Jochen Schweizer is a leader in eternally [indiscernible] so on like experiences, so the combination is very complementary. These companies are using very often same technology and marketing platform so that we're very convinced that we will realize the usual cost synergies, but equally as well revenue and other synergies.

etraveli we doubled the value since the acquisition November 2015 and we sold it to a financial investor. One major reason was that we realized that although we generated some synergies in the German market, the international growth was so dynamic and clearly for businesses which are global in nature, we said that our TV leverage is obviously somewhat limited.

And secondly the roll-up came in Europe was for us an option, but it's a publicly listed company, not so ideal if you see the multiples of the main player in the field in Europe, so we believe that the PE owner can create even more value than we have created and we're very happy that we realized the value through the sale. On Page 27, a few information about our media-for-equity portfolio exit.

I think noteworthy is the IR of around 30% doubling our overall media and cash investment, so I think with the sale we have proven that we generate value and over the last 5 years we had already some exits, all of these up plus please keep in mind that these companies have all this paid as well little bit for the advertising. I think the strategy has proven to be extremely successful.

In terms of value creation potential in digital commerce verticals, we just would like to highlight too because also the major acquisitions we did, Verivox and dating and you can see here some peer group valuations and I would say the peer group has somewhat higher valuation than these assets being part of our group, so that shows that there is, yes, in a way some hidden value. So let's move now to our core business to the TV performance and I decided to start by bringing the full target group here into place.

You see here the different age groups 14 to 29, 14 to 49 and 14 to 69. And it's very obvious that the group of 14 to 69 is very stable and even if you would do this comparison versus 2010, this group is outstandingly stable in reach and in viewing time.

And this group is covering more than 70% of the German population and when I was young the marketing wisdom was that this group is not changing brands anymore, they are not active, they don't have enough money and that all has been proved to be wrong. These people respond extremely well to advertising almost as effectively as a group of 14 to 49.

They are active and they believe they are 10 years younger than their biological age. From that perspective we believe that we need to include this group in our strategic consideration especially as this age group will grow its share of total population, they will have very nice available income per months and obviously they remain very loyal TV user going forward.

On Page 32, this may be an information which you might not have been fully aware of. You see that PayVoD has already penetration of 44% which is okay.

And this penetration only translate into 5% share of daily video consumption. So it shows that TV remains relatively robust even against high PayVoD penetration.

In terms of our position in the German TV market, we have a leading audience share versus our key competitor and our lead in share of advertising is even higher. So we see we're in a good position.

Interestingly enough if you would combine the larger channels, we call it first and second generation channels, ProSieben group is actually leading over the RTL Group and RTL is leading in the small channel group and most of the viewer share gains most recently has been driven by the launch of RTL closing by the expansion of RTL and its role and you know we were basically the first to start the small channel launches and RTL is now basically keeping up with us and this is driving the share development in the TV market clearly much more than the share performance of the larger channel if you would combine RTL and VOX, they are not growing and RTL as a collection is declining unfortunately at some of our larger channels .U.S. content is still a main pillar of our program grid and you can see here that they are still delivering strong ratings.

Clearly the ratings are not any more as strong as in the past because that is still a hit-driven business and we know there has been decades where U.S. was weak and then suddenly there came a new generation of U.S.

formats which worked extremely well and you -- but nevertheless the whole U.S. is still delivering for our large channels a market share of around 10% which for some other markets would be fantastic to have this.

And to illustrate that there is always an opportunity for U.S. hit shows, I have here taking 2 on Page 36 with Lethal Weapon and MacGyver which clearly exceed 10% in certain results and on average MacGyver clearly above 10% and Lethal Weapon is almost at 10%.

In the second half we have very strong lineup as usual. In the first half we're obviously slightly weaker, in the second half we have shows like The Voice or Celebrity Big Brother and others.

And you can see here some examples of the local show, some licensed products and our branded Windows we intend to roll out which we have jointly created with the Scripps.[indiscernible] share of our grid is growing and ratings are outperforming. It presents now 16% of the commission content spending and you can see here some of the shows of Red Arrow which are performing well, so we're very pleased and hopefully the share of Red Arrow as a percent of grid will continue to grow.

Red Arrow's overall KPIs on the next page look very good especially the returning show rate. This is a very critical number and 60% is good, a little bit below what we have last year, but I think overall 60% is a good number.

Quick update on distribution; HD as we have communicated in the past in line with our original target. [indiscernible], there are already 500,000 subscribers in trial period, that is good.

I think we have seen a minor share loss because of this transition, but overall I think it's good for the market that so many people have already decided to subscribe. Let's go now to the most important topic which is the advertising market.

I think let's start at the very top. The overall net advertising market also decreased slightly in 2007, [indiscernible] the first half mainly driven by print.

Net TV advertising market was also negative. In our view, the deviation of advertising revenues from underlying macro environment is non-structured and only temporary.

And let me explain here now why I believe this is the case. I think as mentioned in the first point, the overall ad market is flattish, slightly negative.

That is, if you look at other countries we have not found one single theory which can explain the developments equally valid across all markets. I think there is an overwhelming feeling of an heightened uncertainty caused by Brexit, French-Dutch election which might have led to a shift in spend from H2 to H2.Specifically for the German TV market, we had a few effects.

One clearly was the Parship internalization effect which obviously hit us a little bit stronger than competition, but clearly the money Parship has spent in the past is now not anymore really in the market. However, industry has pronounced sales impact such as Sky vehicles which move clearly because of some exhibitions into the second half of the year.

Specifically, cosmetics have faced a tough H1 2016 comp where they were extremely powerful and strong. When we think about the correlation of this GDP, please keep in mind that in GDP the composition is critical; and the GDP in Germany is now very much driven by export which has really little to do with advertising.

We feel that the private consumption is a much better indicator of TV and clearly here the private consumption is still growing, but the growth has narrowed in the last quarter. So that could rather be an explanation and it's not so much the decoupling.

But if I'm honest, it has probably more to do with individual customer stories. First of all, overall in the total market the number of advertised products has declined.

Same is true for TV. That can be driven by less innovations or less launches in the past.

But there are some clear customer stories. If you think about Unilever, they have reduced spending maybe as a consequence of bit of [indiscernible] as a defense measure quoted clearly after taking over a certain assortment from P&G was pruning this assortment and was refocusing advertising and might need as well to save some money to pay for the acquisition cost.

There are some regulatory effects like e-cigarettes which had an impact on the market. Some companies had problems with their product.

There's one customer in Germany in the travel segment where we clearly said it was more like product issues and they are phasing changes. So we believe it would be very premature to call the structure, we believe it's non-structured and if I take a look at the customer commitments which in our case really point to a stronger H2, I believe that this is temporary and I have not even started to speak about the long term benefits of addressability, V and Hbb TV.

So from that perspective we're as very nervous as everybody else, but after extensive analytics, I'm in a much better mood than I was a couple of weeks before because I think I have now a clear picture of what is driving this. So for us clearly, as for the market it will be back-loaded growth specifically the months September to December will be decisive and as you know, it's always very challenging to forecast the add-on booking period.

For the moment we believe it will be more or less in the line like last year, but can be -- but can be as well better. So we're cautiously optimistic that the market will grow between 1.5% and 2.5%, but we believe it will be more at the lower end of this range.

So Page 45 is illustrating a little bit what has happened in the market. I don't want to repeat.

Maybe Page 46 is a bit worthwhile to go in. First of all, let's not forget -- I think these are the first two negative quarters which we basically had in the TV market development since years and if you think about that Q4 was very strong in a less strong Q4, maybe Q1 this year would have been positive.

So in reality, we speak about a very weak quarter 2.Here are some reasons; cosmetics and beverages down in the first half after a very strong performance in 2016. Here I mentioned already the [indiscernible] issue.

Motor vehicles, they moved into Q3 in line with the motor show. I think in telecommunication we have seen a reduced advertising spending which we believe is driven by consolidation, some shifts of Unilever and some regulatory advertising effects, the slower growth of private consumption and that overall fewer products has been advertised.

Page 47 is very relevant; 6 out of top 10 industries increased their TV budget; and 7 out of 10 increased even TV ad share. There are some companies for example like Mars which reduced their overall spending, but increased TV share.

There are companies like L'Oreal which reduced their ad spend as well, but at least they kept their TV share stable and some others like Procter made a big announcement that they'd rather focus more in the future of TV than on digital and you are aware about all the discussions around effectiveness of digital advertising. So if 7 out of 10 major categories are increasing their ad share high, I see this as a positive.

Page 48 is showing you the effect we expect on -- through back-loading to achieve the intended market growth rate and Page 49 is showing that we're not alone in our forecast between 1.5% and 2.5%. There are some which forecast 2.9%, others like Magna are 1.5%.

So we tend to believe it's at the lower end of the range. So the outlook as I mentioned lower end of the range.

Our gross is really driven by share catch-up effects in the size of month September to December. We expect our performance to be in line with our main competitor.

TV share of the advertising market on a net level will clearly remain stable and we see addressable TV as a top priority and the key driver for addressable TV obviously would be AdTech and data and we're well-positioned there. Page 51 gives you more longer term outlook on the TV market.

The basic market grows print cannibalization, the opportunity to get into [indiscernible] new advertising segments, addressable TV, but clearly some losses as expected to digital video and this minor shift to performance oriented advertising. But even after the shift we believe that the TV market will continue to grow by 3%.

And one major driver as mentioned before is addressable TV; addressable TV is driven by AdTech and data and on page 53, you can see our footprint here, on the technology side you'll see the companies we own which are relevant. You see our data sources, our products, most recently added the Log-in partner alliances and our sales-force.

And at the bottom of the chart, you see the numerous value drivers, AdTech and data will have for us. On Page 54, I will say our group and our main competitor will have a very strong position in combining TV data and commerce data.

I think the two, plus obviously the big U.S. companies will really dominate the market which is data driven.

Clearly more coming from the brand-building space, others coming more from a performance marketing space. But we're very well-positioned thanks to our technology and thanks to our access to data including our proprietary commerce data that we feel very comfortable that in the future we have a strong position.

Page 55 is explaining again and it was shared last week some information about our Log-in alliance partnerships and we hope that more partners will be added. 56 is giving you some illustrations regarding addressable TV advertising.

It's important to know the business is still very small. It has certainly to do with the size of the data pool, this is penetration of Hbb TV and the active usage of red button.

Spot replacement is not yet possible, but 67 clients already using it compared to 24 clients last year. I don't want to say the number has tripled, that would be premature given the small size of this business yet, but it's certainly encouraging.

Here on the next Page 57 you see the programmatic sales house we established together with TFI and media set and to focus on premium video ad inventory. So let me close with the outlook on Page 59 we can confirm our revenue and earnings outlook for 2017.

We believe that it will be at least high single-digit group revenue growth. We talked already about the market outlook, we talked about the effect that September to December will be decisive.

We're very positive about the growth profile of our digital portfolio and about our content production growth and adjusted EBITDA and adjusted net income will lead to another record year as well. So with this I would like to close my part and would invite you for Q&A.

My first question is on advertising. So you're saying 1.5% to 2.5% and the brand.

That implies XA TV, a growth of 5.5% in the second half. Can you give us some color on July and August and whether the growth rate will be the same in Q3 and Q4?

That's my first question. Second question is the pace of M&A has been less than usual.

Are you finding it more difficult to find deal? And then the third question is you raised €1 billion through capital increase and selling etraveli, you have spent less than €100 million on M&A.

Would you consider buyback?

Yes, let me start with the quarter 3. I think July was a promising start into the quarter.

For August and September, it's premature. Keep in mind that September that presents 50% of this quarter, so September will be the very decisive months.

I think Q4 will be very relevant especially as last year December was already strong, so we have to see. Based on the current customer commitments we have, we're confident that the market and our growth target can be accomplished, but we have to see how the add-on booking period will go.

I think the burn down rate so far is encouraging. I think most of the customers which have to spend in the second half of the year have not already burned down, others have already burned down a lot, so maybe there is more.

So July positive start, December -- September critical, but Q4 will be very decisive. M&A difficult to find, I mean, there are not hundred of companies queuing, but I think we have a very active list of 10 to 20 projects in a way different degrees of realization.

I think how the question to conclude on the right terms and we always communicated that we remain very patient until we have the deal we want and we will not rush into a deal just because we have money. And given that M&A produces such a superior cash flow ROI, we believe it's much better to wait instead of doing share buyback.

Couple of questions, first on going back to what you said during Q1 -- during the Q1 call, you said you'd expect broadcasting segment should be able to choose 2% or more revenue growth. How do you see that now?

That would be my first question. Second question, just trying to understand the different months in Q2, so not completely off, your main comp last year was around 5%-6%, tune down anything around 12%, so for the Q1 I think mid-May, so I'm kind of wondering I mean what really happened here because if May was heavily down, more so than maybe a lot of people expected then, this is something that you maybe could have seen already, so I'm just trying to figure out how the individual months worked?

And particularly also maybe you could talk about the impact on consolidation from ATV during the quarter because then the underlying probably looks even bit more bleak. I'm just trying to understand how the individual months worked here and then I may have a follow-up.

I think the forecast for broadcasting for the full year is 3% -- approximately 3%. In terms of different months, please keep in mind that in TV you get the forecast of the agency which is -- that's astonishing, not always 100% correct.

The booking -- from booking to airing, it's only 6 weeks, so that's way you always take what's the historic numbers to forecast what probably can be added to the agency forecast. June was up, but weaker than expected and we believe it was clearly driven by the higher political uncertainty and by the few I would say customer movements which have moved campaigns which you didn't -- has anticipated, but again the only chance we have is basically we have a full year commitment and then we get usually in agency forecast which is somewhat predictive for certain months, but still subject to change and obviously if a customer wants to move a campaign, you move the campaign and you are not insisting on airing it in June.

So that basically resulted into June which despite being up in a way was of disappointing. The consolidation effect from ATV is for full year 0.5% point and therefore all this for the full year 1%.

Okay. And I mean, if I want to in terms of things that worry at the moment, I mean you mentioned the audience shares on one of your slides.

How are you looking into 2018 given that the relative auditors have been I presume weaker than what you expected at the beginning of the year. You seem quite happy about the upcoming schedule for the second half, but I mean how do you think in terms of audience about 2018?

Again, maybe go back to some basics; first of all, we still believe that audience shares and they remain within a certain fair range, will not have such an impact to be translated one-to-one into advertising shares. Secondly, you have to understand where do you win, where do you lose.

For example if we would lose to the publics, but they broadcast spots in primetime where they cannot do advertising, the loss basically in viewer share doesn't translate into advertising share. When you gain with smaller channels like we did in the past and ATL is now doing with their channels, you usually don't get the same impact on revenues like if you would gain shares with larger channels in primetime.

So if the ranges remain in what you see now that space, we don't believe a significant impact on advertising share, we have some hopes that the thematic windows which provide a nice contextual advertising environment for some of our -- of print customers that this will give us a certain lead as we go into next year. But this is not a major area of concern for the time being.

Mentioned new thematic channels, did I catch you right earlier that you are thinking about launching new channels together with Scripp -- Scripps, sorry?

That's one opportunity. We start with thematic windows now and depending on the development of these windows, we might discuss with our partners is a potential now for a new channel exist.

So we have to give us a few more months to understand the effectiveness of thematic windows, but it could possibly lead into a new channel, but not necessarily. For the moment I'm cautiously optimistic that the windows are performing so well that we might conclude it would make sense to launch 1 new channel next year.

But for the moment it's premature and we will latest update you at the Capital Market Day about if and how many channels we will launch next year. But if we launch new channels.

they will be thematic channels addressing possible print customers.

My first question is -- so on the commitments that you have on the advertising side for Q3 and Q4 which advertising categories are the ones that are coming back? And I guess my question is I'd like to understand if the investment that is coming back is tactical such as you say the Otis has an exhibition, so they might invest more or is it more ongoing investment which is coming back to TV?

My second one is on the audiences. Do you think one of the reasons maybe why your audiences over the last 24 months have not been so amazing is because you tend to have maybe versus RTL much more focused on American content rather than local content and that is much more competitive -- I mean the competition with Netflix is much more close than with RTL for instance.

And the third one would be on the European Broadcaster Exchange that you have announced the TF1, Mediaset and Mediaset España, I totally get the point of it and I totally see how you would potentially be able to compete with big digital players. My question is just how is it actually done because I see everyone wants to keep the best inventory for themselves and not give it to a global partnership?

So is it actually realistically achievable that you can do lots of global or bigger campaigns via this system?

Let me maybe go back in history as it relates to commitments. And for those of you who cover us for more than 2 years, you might remember 2015 where in the Q3 call every analyst was hyper-bullish about our full year outlook.

And we said look -- because we were performing so well and we were so much ahead of RTL and we said we believe that in quarter 4 there might be a share shift back to RTL for the agencies to fulfill their commitments and to qualify for rebates. So for those of you who are interested in these type of things, you might want to take a look back at 2015 and how it ended up.

And I think spending coming back, I think it really in advertising depends how many new products you have, what is your competition doing, what is your ROI, how is your overall year going. I mean for example now we believe that a lot of the global customers very often face more budget restraints which are driven by global head quarter decisions.

As I mentioned on Unilever and [indiscernible], if I take a look at our pure national advertisers, their development is very reasonable. So there are so many sectors coming in that the commitment level is a 1 plus the share type of agreements or the agreements you have these agencies which give you the best predictor, then the main remaining uncertainty is the add-on booking volume which is not covered by the commitments.

In terms of audience, couple of things; our share loss structure in a way is in line with our group structure. So when you have more than 50% of your group being U.S.

you can expect that 50% of losses are coming from U.S. and that's happening.

Secondly, if local [indiscernible] would be the key differentiator, why is RTL as a main channel losing share? And why is the share growth of RTL coming from their smaller channels RTL Nitro and RTLplus?

Netflix and our overlap in U.S. shows is only 10%.

And let's not forget Netflix is mainly focusing on series, but in our case we have strong U.S. movies and the U.S.

sitcoms. I mean more than 95% of Big Bang series watched linear and not on any catch-up platform.

What is true and I admit this, we would have loved to see stronger procedure series with a cast which serves as a projection for European viewers is coming out of the U.S. If this is the case like with Lethal Weapon and MacGyver, you see that it's performing well.

So from that perspective I would say as much as I wish to -- love to have higher successful shows, local shows, I don't believe that this is the main reason. I think what we really need is Scripps local shows which we can air daily.

I think -- my opinion are missing, our problem is not that we have a lot of U.S., our problem is that we don't have a daily soap and primetime or an excess time which is working well on one of our main channels. So that is the issue.

In terms of EBX I would like Christof Wahl to take this question.

Yes. Good morning.

Christof here. On the EBX I want you to -- remind you that EBX is really targeting add-on customers in campaigns that we so far were not able to address in those companies are seeking for pan-European campaigns.

That's the reason why we have joined with the countries in France, Italy and Spain. And now offering on a single platform that customers can book automatically in a programmatic way.

And we have done from our countries certain quota that we're committing to that joint EBX that we're doing. And we will continue to do this in a premium marketing way.

So this is not a random inventory story. This is premium inventory that we can give to pan-European campaigns and it will be additional bookings that we will seek.

Also you have to understand that we're not sold out with our inventory, so we hope to attract additional revenues via EBX.

I have a few question please. Firstly when you talk about the overall ad market being flattish, slightly negative and TV kind of maintaining its share, does that include Facebook and Google?

And if you were to add back those online companies, how do you think share would have moved and what we have in the overall advertising market? Second question which is a little bit related to that, I think on the Q1 call, you did talk about seeing more advertisers shifting away from branding into performance-based marketing to be near term bottom line, but we're also seeing at the same time through the recent results a lot of FMCG companies having missing out top line and volume growth being soft.

So I'm just wondering if from your conversation with your clients you're hearing those guys wanting to come back to branding to boost their future volume growth, that's the second question. And thirdly is more on maxdome and we talked about competition from Amazon and Netflix, just wondering if you can update us on the recent subscriber trend for maxdome and if you still expect break-even this year?

Okay. I think the overall ad market being flattish is including Facebook and Google.

The advertising shifting to performance-based marketing, it's an interesting point. I think over the years performance marketing is obviously growing bit by bit.

Clearly some brands or businesses, for them performance marketing is super relevant and they only have a modest share of brand-building as a percentage of their spending mix. For others, it's the other way around; it's mainly brand-building and some performance-based.

In crunch time, clearly some CFO tend to force their CMOs to really focus more on performance-based. But at the end of the day performance-based is only proven to be right if it ultimately leads to a direct sale.

Everything else is indirect performance and you have only proxies. And I think in the future we should not forget that addressable TV can include performance elements and think about broader, yes, if the shift to mobile continues classic [indiscernible] activities or performance marketing activities, they become more cost-intense because there are simply less space on the mobile screen, so you have to pay more.

And then at some point in time even for some hardcore performance marketing our [indiscernible] TV might be even better. I'll think about is the world is dominated by Alexa, everything is voice, don't you think that TV advertising which is brand-building is for some of the advertisers the only chance to get noted by Alexa, I don't think that Alexa will order simply by just hearing a TV ad, but I would say that is certainly for us as well an opportunity which so far has not been let's say realized by a lot of market players.

And from that perspective I'm not too concerned about can we deal with performance management or performance-based marketing, I think we can. In terms of FMCG actually it's a mixed spec.

Some categories are up, some categories are down. I think where you are right is that FMCG companies are driving effectiveness.

Some respond this budget cuts, those as I mentioned before who cut budget very often keep their TV ad share stable or actually increase even TV within their budget and for us Procter and Gamble is really still the gold standard in marketing. They were the first because they are smart, they are excellent marketers, so experimented first with digital marketing and they seem the ones to go first now out of digital marketing because they have had enough data points to conclude that for their products it might not work.

So from that perspective I would not say FMCG as a whole is problematic, on the contrary, there are some positive examples and negatives, I think a lot of them might come back to branding because of realization that it's the only chance to ultimately compete in an environment which is dominated by Google mobile or Facebook mobile and Amazon Voice and because of the fact that digital doesn't work or doesn't work as good as people make them believe. I think the next on trend, Christof, if you would be so kind to take this?

Yes, Lisa, coming back to the [indiscernible] point, we're seeing as typical in the first half year a very slow growth in the overall market of subscribers for [indiscernible] services, so we think it's even less than 10%, as this is a market that is typically stronger in the second half year especially in the quarter 4. We're compared to last year with 200k more subs in the market than last year, so that is a nice progress and we have continued our strategy to strengthen as what over to transactional service TVoD since in SVoD we do have more native margin in this and take the position in the market as a #3 to be the local hero in the market.

And all of this helps us to make the progress towards profitability. We see that in Q2 and we're making progress towards our drive to profitability in Q4 and if you continue to make this progress we have a good chance to reach this in Q4 this year.

Couple of questions; firstly just on advertising, do you think commitment is an appropriate word or would you say that that the advertisers give you a loose indication which they -- of money which they may spend this year which may because of the general environment rollover into next year. So that's my first question is what is the nature of commitment if you like?

Secondly going back to an earlier question about U.S. content, is the overlap with Netflix actually relevant?

It might only be 10%, but is it not the case that Netflix is offering a similar/better alternative to the linear broadcasting? So it's not actually the overlap that matters so much as the -- as the sort of potential replacement effect and you did say when you were competing with in the digital business you didn't want to compete with digital giants, but on U.S.

content effectively you compete with digital giants. And then thirdly, just looking at your portfolio actions at the beginning of the presentation, would you say that one could interpret your digital strategy is becoming a sort of supermarket is second tier digital assets where you don't have to compete with global giants, is that really a particularly attractive way to spend the €1 billion you have available to you.

First of all thanks for the underlying positive tone in your question. Very British so to say.

So let me start with the word "commitment" I think it's some between loose agreement and legally binding and it's actually closer to be legally binding. In most of the years on the commitments proceed, I think the only exception we have seen in messes, economic downturns, messes, messes and that is something we certainly don't see.

So you can say the commitments are very robust, I think the uncertainty is rather on the add-on booking which is not part of the commitments. In terms of U.S.

content overlap with Netflix, I think you have a relevant point here. First of all, it's -- we have two different questions, question #1, what percentage of viewers really would like to see how many hours of U.S.

serials per day, per week, per months, per year. We call this [indiscernible] saturation and frankly if you think about the most successful shows are non-U.S.

show, if you think about that in terms of catch-up on TV, the most successful show is Germany's Next Top Model; I would say the passion for U.S. here is somewhat limited, yes and frankly if you think about what of Netflix content is really realizing significant reach amongst viewers, it's rather arthouse than anything else.

So -- but clearly without YouTube, without Netflix, there would be more I would say time available to watch TV, but let's not forget that still a lot of people are watching DVD and I think Netflix is predominantly eating up that time, so I think that is not the challenge. In digital I'm not sure if you consciously misunderstood me or you just didn't get it, I was referring fundamentally to digital commerce and it's obviously clearly that Netflix is a giant, that's a no-brainer.

In terms of digital strategy super marking of second tier digital SS, you might have not seen the chart there as showed the 6 leadership positions we have, but clearly I would like to own Amazon as well, but that's a fortune card for us.

I'll try to make the tone a little bit more upbeat. Let's kick off with the digital operations.

Your organic guidance 15% for the overall portfolio there, that implies acceleration in second half. So can you just take us through why you expect that organic to pick up in the second half and why was it unexpectedly weak in the first?

Second question, you mentioned that you expect your TV shares be in line or your ad share in line with your key competitor. Why do you believe share can recover when again this is unexpectedly missed over the first half?

And then if you could just break down the components of German broadcasting business between programming sales, ATV contribution, the ad revenues and distribution as well because we haven't got full disclosure in the actual presentation.

First of all, Laurie, thanks adding to the upbeat tone. I guess mine was already upbeat, so I'm glad that you joined.

I take the question about RTL and then Jan Kemper will take your first and your last question. In terms of IPO share recovery, ad share recovery, I just refer once again to 2015 which is giving great evidence that this really worked already in the past and was not the first year worked like this.

In a sense of why do these things happen, it has sometimes a lot to do with advertisers are booking certain campaigns and they are trying to pick the right formats which are supporting this type of campaign. Some advertisers has a deal just with RTL, some have the deal just with us.

It's the seasonality of the ones who just have a deal with RTL is very much frontloaded. That has nothing to do with the seasonality of the customers which has -- have deals with us.

And secondly -- thirdly the end especially when it comes to quarter 4, a lot of the agencies try to optimize their rebate mix and try to get as much reach in as possible. So based on this and based on the experience in 2015 and then other years we believe this mechanism of share compensation will as well apply to 2017, okay?

Jan, can you take first and third question please?

Sure. Yes, as mentioned in the presentation, the growth of the digital portfolio was above 12%, so slightly below the portfolio target we give at 15%.

We're safe to keep in mind that typically the second half of the year it is stronger for the digital portfolio, especially for our interest of the commerce portfolio which picks up specifically in Q4 and that gives us a very good indication that including ETI we will reach 15% as outlined as our mid term range for growth on that side. With regards to the sales split for the German broadcasting, first of all, the ATV contribution in first half is around 0.7%, so the organic growth of TV ad plus distribution is around 2.3% in their distribution on that side around 0.3% to 0.4%.

And programming sales? And programming sales please?

Programming sales in the higher single-digit million amount.

Okay. So in terms of the contribution to year-on-year growth, what was programming sales?

Yes, it was a small a positive contribution on that side. 7%.

Just three questions from my side. The first one is just on the balance sheet side in terms of gearing.

Thomas, if you are not correct in your observations around the slow-down being nonstructural and growth rates continue to be sort of weaker than expected in the second half and going into '18, how do we think about the gearing structure of the business in a weaker advertising market in longer term? That's the first question.

The second question is that on the M&A side, I think you mentioned earlier that there was sort of 10 or 20 other projects that were ongoing, going back to an earlier question with the available funds available, how big are these targets? Are these sort of €100 million-plus targets or are they smaller, so we can try and get an understanding of how big the M&A bucket is out there?

And then the third thing is just on cost down in terms of broadcasting, so second quarter with actually -- costs were actually down nearly 6%, then nearly down over 2% in the first half. How do we think about cost out -- or cost flexibility in a week in TV advertising market if this obviously continues?

I think -- let me start with the M&A question and I think then the first and third question in my opinion are somewhat related and I will start and then Jan will complete my answer. The price of targets as we obvious mentioned we go for bolt-on and some of our targets are in the space of AdTech and sales adjacencies.

Some of our targets are in the production space, some of our targets are complementary to our digital commerce portfolio. And if you -- I would say the majority of targets is clearly in the bolt-on space.

So if you see our history what have we done in production, the amount we spend per company and if you know that most of the AdTech -- ad sales type of businesses in Germany are somewhat rather smaller in nature, I think it can -- you can get a feeling about the size we talk target. And we obviously said our M&A strategy is rather accumulation of smaller bolt-ons versus one big deal and that has served us well in the past and it will continue.

In terms of what do we do with the TV market, I think at the end of the day in my opinion the TV market is a 2% to 3% gross market. In such a market you always have to do the classical playbook, you look about consolidation ideas, you look about trimming the organization -- [indiscernible] organization to a modern setup which is anyway a bit leaner, so I think you have to do this anyway.

And I can reassure you there are opportunities. Secondly you take a look at your program grid.

Sometimes you fill up some hours with some attractive low-cost programs which perform surprisingly well, especially during daytime and during afternoon. Sometimes you might -- we have to possibly talk with U.S.

studios about changing the type of deals we have and that is something we would have done anyway. Maybe we have to explore to drive our distribution revenues stronger which as you know in Germany is an unexploited opportunity compared to other markets.

Maybe we have still opportunities in the space of mini-bundles and maybe we start to create channels, do a play between pay and free to air as we did a couple of years ago in Hungary. So I think for me responding to structural challenges which might come or might never come is not only an exercise of cost-cutting, it's as well an exercise of creating new revenues and be reassured that we're prepared for both.

Jan, if you want to add.

Yes. And as you correctly pointed out, in the past I mean we were continuously able to adjust our cost-base to the revenue potential of the respective quarter or half year, the business.

So we're always running efficiency programs and then we continuously decide where to invest in growth or on safeguarding the group's margin profile. So -- and as history has shown, we were able to implement those cost savings across the whole group if needed, but as Thomas pointed out that is currently not our base-case scenario for the second quarter -- for the second half year where we expect increasing advertising revenues.

So I have question; first one could you give a guidance on your CapEx from 2017-2018 and how much do you expect the programming cost inflation for 2017 and 2018? Second point regarding your audience share development between [indiscernible] channel and VOX, the gap is reducing, maybe you can give us a flavor of how much the premium price you get for that [indiscernible] versus the VOX?

And do you see this premium prices at risk with reducing gap? And last question regarding content, maybe you can give us a number of how much of your content is local content and what is your target in the third shell?

The second point regarding the development of your adjacent business, it looks like it's rather disappointing, what do you expect for the second half of the year? And do you maybe think about the potential disposal here of the activities?

And last but not least, I'm sorry to come back to your net of advertising revenue, that you said many times actually commitments are rather safe, it depends more on the add-on booking, you have actually 6 weeks between bookings and airings, but for the first time you kept 7th time on a row your guidance, so is the visibility weaker, what actually has changed in the way of booking for your client?

Let me start with the last one. I think we have not really changed our guidance, we have kept the guidance for the TV market to 1.5% to 2.5% where others actually have remained even more positive than we're and the only specification is that you said it's rather be on the lower end of this range.

So I don't consider this to be cut-off guidance. And for our overall guidance for the year we have not changed anything, you can rather say that we have confirmed our guidance.

Then maybe the question 2 and 3, I will take quickly. I think the audience share gap between alliance and VOX is still at a level where I don't see the premium price at risk and the question is anyway at what point in time can even channels which has 7% or 6% share ask now for aggressive premium pricing given that the relative reach of these channels compared to other medias are so large.

So I don't see this really as a risk. I think in terms of content, you know that our -- the majority of our grid is [indiscernible] driven, split into three categories, movies, series and sitcom.

I think going forward, I would like to raise the share of local rather to a level of 60% to 65% over the next 3 years to 5 years. And ideally out of 6 -- out of this 60%, 65% maybe a third is which is in-house.

That would be -- that would be a good ratio. And this is part of what we intend to do over the next 3 years to 5 years.

I would like now Christof to talk about adjacent and Jan to talk about CapEx.

So Sonia, on the adjacent, just to remind everybody that adjacent for the first half year was a business of €12 million, so yes, it is compared to last year significantly reduced, but it's also not our most concerning area in a company. The structural topics we're facing here is specifically new music business, where we have a very synergistic play today which is also the reason we think this business is well in our company, that it is well synergistic with our TV business and yes, we have to manage the transition from a mostly TV influence business into a digital business in which all the other marketing methods from performance management up to managing Spotify playlist and the core of that and in this transition we're losing some of the revenues and we're -- manage this organically.

So -- but I think it's still synergistic for the house, that's how we see it today.

And with regards to CapEx, I guess it's fair to assume that that level for 2017 and 2018 will be roughly in line with prior years, so around €150 million and program cost inflation somewhat in mid single-digit obviously related to the ad performance in the second half.

Just a follow-up; first, Thomas, when I said guidance cost, I think I can remember you mentioned the flat net advertising revenues growth for Q2 is what's referring to and that's why I changed that, is the visibility is weakening? And maybe just to come back on your part of your local campaigns, you just -- your target, but what is the path today of your local content?

Yes, I think with quarter two, you were right, the June weakness caught us a bit by surprise. There is currently a little bit more volatility, but the commitments are robust and that is what we usually -- all this can rely they're clearly above last year, they point in the direction of the market cost we have intended.

My hope is that in the larger months you will have not the same volatility than we had in the smaller months which were more impacted by comps versus last year. So you're absolutely right, June was first months where we were taken a bit by surprise.

Again July started good. I hope that in the months September to December which are the larger ones we have less -- yes, more visibility apart from the add-on bookings.

So that's -- it's my hope and I'm really optimistic that that can be achieved because then ultimately the more you come to end of the year that it becomes clearer, the money which is available and what people can spend. The degree of uncertainty for our customers usually is very much reduced and very often in the last months they have seasonal businesses like we have for example, for some of our business where we say Christmas calendar and there you have to spend, otherwise you cannot sell your product.

So I think in the last months we will have more degree of comfort that the commitments will be really spent in exactly the months it was announced. And again the share of local content today is I would say around 40%.

Can you just remind us when etraveli will close and how much EBITDA you release from that next year? And then I appreciate your comments on how you approach the M&A pipeline, but can you say do you expect to complete enough M&A to offset that pressure from the lost etraveli profits into next year?

Sure. First of all, etraveli is expected to close over the next -- over the next 2 weeks, so definitely in Q3 most of the consolidate from 2018 numbers is roughly €220 million in revenues and about €55 million in adjusted EBITDA.

And is there anything you can say about whether you expect to have concluded enough M&A over the next call it 6 to 9 months to offset that -- of the impact into next year's numbers?

Well, one thing is I mean definitely we will come out at the Capital Markets Day with putting all the numbers and all the insight we have until then together and also give you a new outline on the capital markets targets 2018. As Thomas pointed out, we have a filled M&A pipeline looking into that and hopefully over the next weeks or months, we will also be able to communicate further deals out there that could then partially or fully compensate for the deconsolidation, let me remind you one deal was obviously the Jochen Schweizer deal which will work against it and also some minorities we bought out in the second quarter which you can also see reflected in the cash flow statement where we actually paid €50 million in Q2.

My final question is that you said a couple of times that the July started well. As you need to grow 5.5% in the second half, can you tell us whether July is above that growth rate or not?

Yes, it is above this, but again let's judge quarter 3 once we have September in the main months. So I don't want to get -- make you too -- feel too comfortable for Q3 before they have September with a weight of 50%, but July has started above this rate.

Well, ladies and gentlemen, as far as we can see this was the last question for today's call. If you have any follow-up question please do not hesitate to get in touch with our IR team.

Dirk and the team will be waiting for you. With this, we wish you a very good day.

Thank you.