Grupo Televisa SAB (TV) 2002 Q3 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Grupo Televisa Third Quarter Teleconference. At this time all participants have been placed on a listen-only mode and the floor will be opened for your questions and comments following today's presentation.

Before we begin, I would like to draw your attention to page 12 of the press release which explains the use of forward looking statements. Please familiarize yourself with this section as it also applies to everything discussed in this conference call.

Now I will turn the call over to Grupo Televisa's Chief Financial Officer, Alfonso de Angoitia. Please go ahead, sir.

Thank you.

Good morning and welcome to the Grupo Televisa's conference call to discuss the results for the third quarter 2002. With me today is Jose Baston, our Corporate Vice President of Television and Alberto Islas, our Head of Investor Relations. I am going to take you through our financial results for the quarter, including results from our publishing radio and Internet divisions. Then I will briefly discuss the recently announced strategic alliance with [inaudible]. Afterwards I will discuss our operating results related to the division associated with television content. When Pepe is finished we'll be glad to take your questions.

Results for the quarter are a reflection of the state of of the Mexican economy ask our efforts to maintain our margins in a difficult climate. Despite the rough quarter, we are pleased with adjustments we are making and remain focused on growing our business. Consolidated net sales remain flat at 5.2 billion pesos in the quarter. Television broadcasting net sales had a slice decrease of point 3 percent to 3.3 billion. As we have stated before, clients shifted their expenditure from July into June in order to have a strong presence in the world cup. This resulted in a shortfall of revenue in July. However, we saw encouraging signs in August and September. Considering the limited results in sales, we have focused our attention on a strict discipline in respect to costs and expenses while maintaining our quality standards and audience share. As a result of the cost controls we have been able to increase our margins. Television broadcasting EBITDA margins increased to 40 percent in the quarter. Publishing revenues declined by 4.8 percent compared to last year. However, we increased circulation in the U.S. contrary to the current trend in the industry and we significantly boosted advertising sales in Mexico. This positive signs indicate that a recovery of this segment is underway. Additionally, over the course of the year, we made some changes in our publishing division that will speed up this recovery. We reorganized the sales force around brands and core clients and we launched new titles and services such as Maxim [phonetic] and Travel and Leisure in Espanol. It is important to note that Maxim broke even in its first issue. And this and other initiatives will help us enable the division to reverse the trend in revenue and EBITDA for 2003. As you know, we acquired distribution centers in Chile and Argentina and they are starting to deliver excellent results. Especially Chile. In this quarter sales are up 45 percent and EBITDA is has almost doubled. The radio business saw a decline of 7.1 percent in revenues, [inaudible] as well as our partner Grupo Prisa [phonetic] to make some changes in this division as well. Especially in the sale fronts. With the changes that [inaudible] is making to the performance of the stations we expect to regain audience share we lost and be among the top rated groups by the first quarter next year which will be introduced in traditional sale. Our Internet division greatly reduced losses in the past nine months from 163 million pesos last year to 49 million pesos on an accumulated basis from January to September 30th. This figure represents approximately a 40 percent cut from this year's expected negative cash flow and one-fifth of what [inaudible] cost Televisa in 2000. We will make further cost reducks in the fourth quarter and throughout 2003. Our consolidated EBITDA for the quarter increased 1 percent to 1.5 billion pesos from last year and our consolidated EBITDA margin for the quarter increased to 29 percent. This increase is due to our continued effort to run a more efficient operation. So far this year we have reduced head count by 927 people, laying off employees mostly in publishing, radio and Internet. Going forward Eduardo Miguel [inaudible], who previously led publishing's international division will be the CEO in charge of publishing and Juan Saldiva [phonetic] will head [inaudible]. Both Miguel and Sadiva will report to management committees.

Net income for the quarter amounted to 378 million pesos, a 10 percent increase compared to last year's quarter. As of September 30, we maintain cash on hand in an amount of $690 million. Our credit ratios remain strong. Our debt to EBITDA leverage is 2.4 times and our EBITDA to interest coverage is 4.6 times. Before moving on to guidance, I would like to review the details of the new strategic alliance with [inaudible]. Jose is entertain. Tell visa is very excited about our new partnership with [inaudible]. Which we formed last Friday. We strongly believe that growth will come from forging new alliances in businesses related to our core. In this case we have teamed up with a proven team of successful operators in the live entertainment business. Televisa acquired 40 percent of [inaudible] a newly formed subsidiary of [inaudible] CS live entertainment business in Mexico for $107.2 million. We made an initial payment of $67 million and the remaining balance will be paid in the first quarter of 2003. The operational results of this investment will be registered under the equity line in our P and L statements. The new company in Mexico was owned and managed among others the following assets. 11 convenient use with a seating capacity of more than 230,000. Ticket master's leading ticket company in the country. Several promoting venues - ventures headed by [inaudible]. Food, beverage and merchandising units and [inaudible] the largest producer of corporate events. CS confident in the business [inaudible] such that they have agreed to reimburse tell Visa its proportional share [inaudible] does not generate a minimum accumulated EBITDA of $129 million by the end of 2005. The joint venture is expecting an EBITDA of around $37 million for the next year, 42 million in the second year and 50 million in the third year of operation. This partnership creates tremendous energies for Televisa [inaudible] and generates value for both our shareholders. As part of this venture the contact produced by [inaudible] will be available for transmission through our radio and television networks and now we have the right for first refusal of films and movies produced and distributed by [inaudible] for our open over the air channels and paid television ventures. We envision the public offering of this company in the future due to its scale, profitability and growth potential. After this transaction our capex in 2002 will amount to $250 million composed of 140 million for property plant and equipment including cable vision, $40 million for D pH including Mexico and Latin America and 67 million for this acquisition.

On a consolidated basis we expect Televisa to have a free cash flow by the end of the year in excess of $160 million after the 67 million initial payment of the [inaudible] transaction. The reduction capex in our DTH investments is due to the fact that [inaudible] is not does not require additional funding from its shareholders during the third quarter of 2002 including the payment of interest to bond holders on October 1st, 2002. We expect [inaudible] to be free cash flow positive in the second half of 2003.

Guidance for the fourth quarter of 2002 is detailed in the press release. At this time we are projecting that television revenues will increase in the range of 4 to 5 percent compared to last year. On the cost side as we have done in the past, we will continue to adjust our sales if market conditions are adverse in order to maintain our guidance. We expect costs to be marginally stable in 2002 compared with last year excluding costs and expenses associated to the world cup. Before turning the call over to Pepe, I would like to welcome back Michelle Bullanse [phonetic] who will be forming part of the team of investor relations as of this quarter.

Pepe will now give you an update of our television operations.

Thank you, and good morning. Let me begin by running through several television highlights.

I am pleased to report that in the third quarter television earned 95 of the top 100 most watched programs. Our prime time [inaudible] raised 73.7 percent compared to 68.5 percent in the same period last year. On our sign on to sign off audience share, amounted to 74.6 percent compared to 71.9 percent in the third quarter of 2001. Furthermore, Televisa tell know develop as continued to be the most watched in Mexico and in North America. Sales from our television division were basically flat for the quarter. As a [inaudible] declining revenues in the month of July due to our declining position to accelerate their advertising expense for the world cup and reality show [inaudible]. We met our targets for August and September but we were not able to offset this gap in revenues for the quarter. As we have explained before, clients shift from prime time to other [inaudible] that have high ratings. We are making several efforts to increase usage of prime time which have higher prices. These imports include packaging spots [inaudible] certain nonprime slots for 2003. This will help us to increase revenues and use more efficiently our inventory. On the cost side I will highlight the cost of sales were reduced 2.2 percent and administrative expenses were flat. Today we are producing at the lower cost maintaining the quality. Discussing [inaudible] profitability and we achieve a 40 percent EBITDA margin for this quarter. Channel 2 continues to be the leader in Mexican television, largely due to the success of our TeleNovela [phonetic]. I will also like to mention that our 9:00 p.m. Novela is the only Novela in that time slot and it's averaging about 25 rating points. Channel 5, the network that carries most of our foreign programming and our reality shows, have now created a strong [inaudible] among the key [inaudible]. The changes we made to our line up have positioned us at the most reliable media channel to deliver this audience. Highly valuable among our advertisers. We expect Channel 5 to continue to grow as a strong revenue generator.

Turning now to [inaudible] television services, cable vision sales increased 2.2 percent in the third quarter, compared to last year. Primarily due to a loss of subscribers. The subscriber base [inaudible] 420,000 subscribers, of which 70,000 are digital subscribers. However, we have adjusted our cost structure and our margin increase from 30 percent to 32 percent. We are implementing [inaudible] to recuperate subscribers. First, we are focusing on each market. Like small and medium size businesses as well as high income [inaudible]. And second with the cooperation of the authorities, we are fighting [inaudible] in our city. Our direct to home service continues to out perform. Sky is generating close to 2.6 billion pesos in revenue and 60,080 million pesos in EBITDA on the year. We saw subscriber growth in the quarter, subscriber base growth in the quarter despite competition and tote at subscribers amounted to 699,000. For the third quarter shareholders funding was not required in this venture. This is an important achievement for sky since in October 1st it had to pay interest to bond holders. It's a strong cash flow from collections and its cash balance allowed them to cover its financial needs without asking for additional funding from shareholders. And as Alfonso mentioned, this will be cash flow positive in the second half of 2003.

Now we will be happy to take your questions.

Thank you. The call is now open for questions. If you do have a question, you may press the number 1 followed by 4 on your telephone keypad. If at any point your question has been answered, you may remove yourself from the queue by pressing the pound key. We do ask that while you put your question to please utilize your handset to provide optimum sound quality. Once again, that is 1 followed by 4 for any questions or comments at this time. One moment while I poll for questions.

[Pause.]

Our first question is coming from [inaudible] of Deutsche Banc. Your line is live.

Good morning, gentlemen. I have a couple of questions. My first one is we saw some very good profitability on the broadcasting side of the business. Do you think this is sustainable going forward and in light of the declining audience share number that we saw during the quarter?

Definitely. I think [inaudible] this is a cycle business. And on a number of spaces, if you see our audience share from January till today, the averages look higher than 70 percent. So we feel very comfortable with our audience share and you know very well that most of our [inaudible] this year have been very successful and our competitor has only one [inaudible]. We are ready to compete against that product and we feel very comfortable to be able to keep the audience where it has to be and of course the markets where they have to be.

I think the cost controls that we have put in place are going to stay there. For the long run. So I think I agree with Pepe that we can maintain maintain these type of margins.

Okay. My second question is in regard to the up front process which we know started in October. Now that you've started negotiations with advertisers, do you think you'll be able to put through price increases and what are your expectations in terms of sales, you know, year over year?

Well, we have already put our rate card out. It is very early for us to talk about up front. We are right now to our negotiations and you know this is not a good time for us to talk about it, but I can tell you that rate card is out and our plan is to hire the prices on nonprime and to keep our prices where they are in prime time.

I agree with Pepe. We made some tactical adjustments to the rates. As you have seen throughout the year, we have seen a change in the mix. I think that we increased prices in prime time, especially in the time slot of 10:00 p.m. Channel 2, those prices are too high, and so we're making some tactical adjustments. Daytime became especially Channel 2 too cheap, so we are increasing those prices and we're making some adjustments in prime time. At the end of the day we want to increase the sales through volume increases this year.

Are you giving any guidance in terms of your expectations for up front year over year?

No, I think it's too early to say. We're in as Pepe mentioned we're in negotiations with the clients, so we cannot talk about them right now.

Okay. One last question, if I may. Can you update us on the direct TV situation the loss what the losses were at that point?

Yeah. It's a complicated situation. There are several agreements that govern our arrangements with direct TV in respect to the transaction of the rights of the World Cup. There is a sublicense agreement with the loss of California. In that agreement we submitted to arbitration. However, there is an additional agreement that contains the restrictions that had to do with the transmissions of the World Cup content on sky during the World Cup. That agreement in specific says that it's governed by Mexican law and we submit it to the jurisdiction of the courts of Mexico. So since there's a contradiction of venues from the sublicense agreement and the other agreement, we went to a court in California to resolve this, which a judge that trials take place in the U.S. and it should be arbitration. We are going to appeal this judgment because we would rather have the trial in Mexico. However, DirecTV has offered mediation process before American Arbitration Association, and we're going to have a meeting next week with the lawyers to decide whether we should go ahead with the immediate mediation effort or whether we should go directly to the arbitration. [direct TV]

Okay. Thank you very much.

Our next question is coming from Sean Charles LeMart [phonetic] of J.P. Morgan. Your line is live.

Yes, good morning. I have a question on the [inaudible] business. Can you going back to the cable business, 12 percent drop in revenues appears to be something else that just [inaudible]. Can you touch on that? And also on Inova [phonetic], what kind of assumptions do you have for subscribing margins and capex [inaudible] underpinning your assumption that the company will be free cash flow break even in the second half?

As to cable, use of cable, appears a very rough quarter. We have lost subscribers, I think as a result of several things which include the price increases on the average of 23 percent for the basic service and 10 percent for the digital that we put in place in the first quarter. As you remember, this was a concept [inaudible] 10 percent special tax imposed by Mexican Congress. I think also that macroeconomic situation in Mexico, this environment has also affected cable vision. We believe that as a result of all this we may lose some more subscribers in the following months, and I think that we will start to see growth in cable vision next year. As part of this effort to recapture the subscribers, we are repackaging programming, so we'll have different offering - offers of programming starting next week, and we will focus on penetrating in the broad band service. This will be in 2003. We're going to begin installing more cable modems. We believe that we're going to close 2003 with 30,000 homes and small businesses using our broad band access.

Then going to sky, I think sky had impressive results. As you saw, we had - we reversed the trend and we had the small growth in terms of subscribers, but the important thing there is that the trend [inaudible] subscribers was reversed. As you saw we had an increase of EBITDA and the margin is very good. I think we're very proud of this company because it was free cash flow positive and Grupo Televisa is not going to have to invest any money during the second semester of this year. We believe that next year Inova will require capex in the amount of 40 to $45 million. And as we have said towards the end of the year, we're going to see Inova maintaining its free cash flow status.

Okay. What's your assumptions for subscriber growth? [inaudible] the figure of 1 million subscribers by the end of next year [inaudible].

The target of Televisa [inaudible] have for Inova, it's a million subscribers for December 31st, 2003.

Okay. Okay. Finally, if I may, on Grupo last year, you're expecting a decision next month on this. I mean if you do with the decision, you still plan to spend $107 million for 25 percent of the company?

Yes, thank you for asking that question, Charles. Just to clarify, this decision that we're expecting is - it's a preliminary decision. It's not a final one, so it does not mean that we're going to do the deal next week. I think that there's a year to go still to see a final decision. So nothing will happen next week and nothing will happen until the final judgment comes in.

Okay. You can still walk away from the deal or refuse the original terms -

Of course the original terms will definitely be renegotiated. If the judgment is in our favor and we can close this transaction.

Okay. Thanks a lot.

Our next question question is coming from Daniel Enriquez from Goldman Sachs. Your line is live.

Good morning. Two questions. First one, following the deal with CA, do you still plan on making more acquisitions during the [inaudible] you have some sites on the imposition side and at the same time any divestments you're thinking from some of your noncore business at this point, if you could give us an update on that? And the second question, in terms of the buy back you announced a few months ago, does this recent acquisition of CA, does it mean this buy back tends to be more back loaded more towards later years, or you think that is going to be a more of a stable process over the next three years? Thank you.

Thanks, Daniel. As to the fee acquisition as we mentioned, we believe that in our core business, I think that it's a fantastic transaction with Televisa, as you see. They feel so comfortable about generating the cash flow that they have given us a guarantee in terms of EBITDA performance, so I think it's a fantastic deal for Grupo Televisa. I think that we're going to be able to do a lot of things and to grow together with CA and [inaudible]. We are not analyzing any new acquisitions. I think we're not going to see any new acquisitions in the months to come. On the sale side we are also not seeing any divestitures in the short run. We would love to sell sky tell. However, we have been trying to do that for - in the last two years, and because of the stage of that company and the losses we have suffered in terms of subscribers due to the calling party base. I don't think that we're going to be able to sell it. Our partner there with 49 percent of the company is Worldcom, so as you can imagine, they cannot buy our 51 percent either. So on the divestiture side in the short term, we're not going to see any divestitures.

Now, the share buy backs, we announced the buy backs in September, as you know. It took some^time for us to establish all the legal procedures required, both in Mexico and in the U.S. we have now finalized all those things, and when we finalize that it was too close to the black out period, so the lawyers' advice just to wait until today. Starting today you will see a more active Televisa in the market, so we will start to buy shares opportunistically whenever the price is right, either directly or we're going to use derivatives.

Okay. If I could just add one more question. [inaudible] possible listing of [inaudible]. Do you have any comments on that? Thank you.

We're not analyzing this as we speak. There's some idea that have come to the table as to whether we should merge Televisa and Televisa and create a single stock for everyone, a single security which would have more liquidity. Those are only ideas that are on the table. But at this point we're not working on the leasing of Televisa.

Thank you.

Our next question is coming from Chris [inaudible] of Bear Stearns. Your line is live.

Good morning, gentlemen. I believe you mentioned that you're looking for roughly about $160 million of free cash flow this year. I wonder if you can just walk us through the components of the free cash flow if you have those numbers available.

Yes, hi, Chris. For this calculation we're assuming an EBITDA of 618 million. Then we have taxes to be paid of around 79 million. Capex which includes property, plant and equipment in cable vision for 140 million. Interest paid of 112 million; capex for D G H including Inova and multi country, 40 million; the [inaudible] Fernandez acquisition we made this year, 6 million; a payment of debt that we have to make this year, 25 million; other expenses including transponders, specialty transresponders satellite transponders 27 million, then the CA or [inaudible] acquisition 67 million; personnel layoffs and severance payments 25 million; and then you have working capital of 68 million, which would all these will sum up 765 million.

Thanks a lot.

Our next question question is coming from Julio Zamora [phonetic] of Morgan Stanley. Your line is live.

Good morning, gentlemen. I had one question on the audience [inaudible], TV S reacted very strongly this quarter in their programming and they seem to believe that they have a program that will last them until spring, their carry over. I was wondering, Pepe, what you were thinking in term of capital programming that you could share with us?

Well, we definitely are working on that, as you know, Julio. This kind of shows, you cannot react very quick. You have to create them shortly like we always have, and that program has been a reality show. I think that it's a little bit hard to [inaudible] without having a strategy behind it. Now, what we're doing this year, we don't want to spend any more money this year. We think that the show that they have on the air right now which, by the way, you know very well that that's a show that that you believe is what we have [inaudible] and there is a [inaudible] I guess PBS take up that program they put on the air. Besides that we think that we have enough [inaudible]. Basically they have one problem that it's really, really working, let's say a little higher than the standard they normally have. So we think that this is totally [inaudible] that this [inaudible]. If you have seen the audience, that has not hurt basically at all our main [inaudible] Channel 2. So the competition will come with our other channels which is Channel 5 and Channel 9, and we already have the strategy and we will put it on the air. We started promotion on the air very soon. But we feel very comfortable to be able to compete against that. And as you know, we are ready to launch our new reality shows next year. The promotion of Big Brother is already on the air. So I think that this is a seasonal project that these guys want to go all the way to spring. I don't know if it's going to work as good as it is working right now because normally those shows have a beginning and an end, and they are trying to run this program because, as I said, this is the only program it's working for them, so they want to do it as long as possible. But I think that can lose a little bit of interest. I'm not going to say it's going to work. I'm just saying they're going to have a really hard goal to obstacle to pass by doing this, such a long time and as I said we have enough product to compete with. We always have. This has not hurt our Channel 2. We feel very comfortable to be able to reach the audience share that we're looking for [inaudible] on a yearly basis.

Thank you, Pepe, very much.

Our next question is coming from Rajeed Hamed [phonetic]. Your line is live.

Hi. This is Rajeed Hamed [inaudible]. I have a question regarding your advertising on prime time versus nonprime time. You mentioned there's been a shift from prime time to nonprime time because of pricing policy. Could you talk about utilization on prime time versus nonprime time and what sort of pricing changes you might have seen as a result of demand changes?

Sure. Utilization, it's basically on sign on to sign off. We have about 46 percent utilization and in prime time 64 percent utilization for the third quarter [inaudible].

How that's has that shifted in the last quarter or so?

Hi, Rajeed, long time. Especially on Channel 2 prime time which is you know the flagship channel, the trend had shifted materially because in the third quarter of 2001 we had a utilization rate of 80 percent and it has dropped to 64 percent as Pepe mentioned. So, as you can see, there has been a severe change in the mix.

Have you made any interim pricing changes in prime time [inaudible] ahead of next year's?

The problem, Rajeed, is that 80 percent of our sales are up front, as you know, approximately every year. And the rates that we have for that up front are fixed. So we don't have flexibility in terms of moving prices for about 80 percent of the sales.

Okay. Thank you.

Our next question is you coming from Matt [inaudible]. Your line is live.

Thank you. Good morning, gentlemen. I have two questions. The first one presales and spot sales in the third quarter, what percentage was coming from the spot sales and how much presales left for the fourth quarter? And my second question is on the licensing division, there has been a [inaudible] week for this quarter and last quarter you said [inaudible] was flat year on year. What is the situation this quarter and what is your assumption for next year [inaudible] same sales improvement [inaudible]? Thank you.

Well, the utilization based on plan against box office still basically the same as we have always done which is a mix of 80 percent of up front and 20 percent of [inaudible].

In term of licensing, I think that this division has suffered because of the situation in Latin America, especially Argentina and Peru. But also Venezuela and Colombia have hurt us. As you saw, sales are down 1.7 percent. And this was because - I mentioned because of situation in Latin America. We reversed somewhat because we had better sales in Asia and in Europe. However, we created reserves for [inaudible] accounts receivable in Argentina, especially for 27 million pesos, and that's what's hurting the margins and EBITDA of this segment. As things progress and get better in Latin America, hopefully we'll see a better year in 2003. On the univision front for purposes of this quarter, the royalty that we're estimating that they are going to pay to us is about 3 percent lower than the same quarter last year, and this is about 500, $600,000 less.

Thank you very much. Alfonso owe.

Our next question question is coming from Marcus [inaudible] of Credit Suisse First Boston. Your line is live.

Good morning, everyone. I'd like just to ask one final question about the up front negotiation. If you think that the recent changes in [inaudible] to 130 base [inaudible] audience, if it should be important or not for the process that is taking place right now? And then I have another question.

Well, definitely not. I mean, one thing that you have to see is the company - like I said, on a yearly basis, we're going through a process right now where we saw one problem as I mentioned already from the competition that the first [inaudible] that has worked this year and claims know, and clients know the [inaudible] and hopefully our programming needs, not for this year, but a lot of years. So we have the confidence in them and of course we have the programs and the demographics that they are looking for. So definitely not.

Okay. And another question is on the new subsidiary company to distribute funds, maybe you, Jose, could just outline a little bit the business plan.

Yes, Marcus. I'm glad that you asked that question to clarify it, but first I would like to touch on the paper you put out today.

Okay.

I think you're putting out a quote that [inaudible] gave in an interview that was published by a magazine in Mexico. But you're taking this out of context. That is not what he said, and you should read the whole thing before putting it out.

Actually that was my final question. I would ask you - I read the whole interview, and I would ask you to [inaudible] that if possible. I think this is the arena for that.

I think what Amelio is saying is, basically what he says is, and I'm quoting, Shareholders are important, but he has to basically focus on operating the company. Basically that's what he said. And taken out of context, you put it in the sense or wherever you took the quote from , you're putting this in the sense that Amelio doesn't care about shareholders which is not the case.

About mas tondos [phonetic], as I said Marcos, thank you for asking the question because it allows us to clarify the whole thing. I think a lot of noise has been created around this project. I think it was our fault because we are not very clear in explaining Televisa's involvement, but let me give you some information about the project.

First, I would like to tell you that Televisa is only contributing [inaudible] available air time, television air time to the project. There is no cash, not a single cent involved, and the participation in this project does not preclude any sales from Televisa unsold inventory. So we believe that it's better to participate in this project than to have that unused inventory going down the drain.

Second, it's not going to distract us from our core business, from the focus on our core business. We have created a joint venture with experienced operators in the financial sector, with good management track record. Manuel [inaudible], who is the former president of stock exchange, is going to head the company. [inaudible], who was the former CEO of the stock exchange, is going to be the CEO of the venture. And the investors are a group of people - mostly family which are the largest shareholders of one of the main insurance companies in Mexico. And today Mr. Yamosa [phonetic] will be the chairman of the company. He's the president of the insurance - of the Mexican association of insurance companies. So Televisa's involvement in this venture will only be at the board level. We are not going to be part of the operations or - so it's only going to be at the board.

The project is fully funded by these partners. According to the business plans which has very conservative assumptions, it will break even in 26 months. It will be a low cost operation distributing mutual funds, trying to reach clients mainly over the phone and Internet, and it will have limited branch presence in the main cities of Mexico. Here, I think Televisa is trying to capture value through this equity participation making a better use of unsold air time. You could really see it as a different way of generating a new client in new sales for television, because after our agreement with them finishes in three years, I think this company if it's successful will become a very important client of ours. I think that we will be able to capture value by selling shares to our partners or to third-party as the sector grows in Mexico. We believe that the sector will grow and the large players, especially the American and European players funds will come to the Mexican market. It's also very important to mention this will not increase the sales on the television broadcasting segment, since all these sales will be canceled on a consolidated basis. So we're not doing this to generate or to increase the sales artificially.

In the case that the project does not meet its objectives, also, Televisa's losses - there will be no write^off because of the consolidated nature of the segment. So I mean, if the whole thing goes under, we will not have a write^off. Also Televisa's participation in the venture should not be seen as opening the door for Televisa to participate as a venture capital fund. We have been in the past and will continue to be very selective on these type of projects. We're not planning to do more in the short run. However, this project seems to be a very good one because it has several advantages. I think it's going to be the first fund distributor in Mexico. [inaudible] new in the Mexican market and created in the recent law. So I think it will grow. The average growth rate of the industry in Mexico has been 23 percent over the last 15 years, specifically of mutual funds. So, however, the mutual fund industry is extremely low still, it represents 5 percent approximately of GDP compared to more than 50 percent in developed countries. And as I mentioned before, the industry has not been widely advertised in Mexico. The banks are not advertising their mutual funds on television, so we believe that once we start to offer these funds and advertising - advertise them on television, we will generate more advertising from other banks and other funds.

So basically that's why we decided to participate in this project, basically it's a very small thing really, and that's why we hadn't given it a lot of importance. And just going back to the point - not going to take time away from us and we're not going to invest [inaudible]. So at the end of the day, if it's successful, Televisa will have created value and it's not - there will not be a write down.

Thanks very much. That's all.

Thank you. If there are any further questions or comments, you may press the number 1 followed by 4 on your telephone keypad.

Our next question is coming from Leonardo Drake of Salomon Smith Barney. Your line is live.

Yes, good morning [inaudible]. Just to make a story short, you're not going to put a single cent to creating a retail network for [inaudible]?

That is correct. All we're contributing to this company is unsold inventory of television.

Perfect. Then I have two quick questions. The first one is regarding sky. 40 percent increase for next year [inaudible] seems hugely aggressive. This assumes [inaudible] is folding or it means that we could expect [inaudible] to come in and [inaudible] capex to Inova or create [inaudible] sky platform.

I think what it means is that we have a very aggressive target, and we're going to push a lot - put a lot of pressure on the management of that company for them to deliver the million subscribers. I recognize very aggressive target that both News Corp. and ourselves have put to management of the company. We think that we can see a million subscribers next year and we can see growth there. They are going to put together and they are going to offer new packages in terms of programming, new alternatives, and I think we can see a good number next year.

Okay. It doesn't necessarily mean then moving towards sky [inaudible] next year?

I don't know what will happen next year. It depends a lot on what is going to happen to the echo star, direct TV deal and who at the end of the day [inaudible] and direct TV.

Okay. And the other question I have is regarding the use of [inaudible]. Do you expect to see clear channel joining the venture direct TV in the near term? And then additional things would be are you going to pay the balance also in cash or with a mix of cash and [inaudible] and the last point would be if you see you're going to be recovering [inaudible] in the form of dividends in [inaudible] in the near term? I mean in the near term [inaudible] dividends?

Yes, on the clear channel front we're having discussions with them. I have a conference call with them tomorrow to see what we're going to do with [inaudible]. Whether we're going to fold it into [inaudible] or whether they're going to keep it. I think that in the [inaudible] front we would like to stay with the [inaudible] as a partner. It's a business that it's too small for three shareholders, so we would love to stay with CA. And however, in the United States, as you know, we own 50 percent of [inaudible] Fernandez together with clear channel and CA owns another company called [inaudible] which is another very important company in the [inaudible] entertainment business especially focused in Los Angeles in the Los Angeles market. So I think in the U.S. side of the live entertainment business we're going to be able to form something together with CA and clear channel and to create the largest live entertainment company for the U.S. Hispanics.

On the price of the deal, if you saw $107 million, it's cash. However, we believe that [inaudible] and CA will become advertisers with Televisa, so that will depend on their decision as to how much of that cash or other cash will be invested in advertising in the future with us. As to the dividends, I think that [inaudible] will become generator of cash. The total debt would cost, as you saw $6 million. And they're going to generate a substantial EBITDA. So I think they will start to pay dividends in the first year. Good news is I think, I definitely think that dividends will be paid in CA on a consolidated basis. We'll also want to see those dividends for their own purposes.

As we mentioned, I think that we will see [inaudible] of the company. And if you're to consider that whenever we do the IPO we could sell shares [inaudible] at 89 EBITDA, we could have a return on our investment of the higher than 50 percent.

Okay. Perfect. Thank you very much.

Our next question is coming from Robert nigh digger. Of Credit Suisse First Boston. Your line is live.

Yeah, I have a question, a question regarding Inova. When you said that the capex target of next year you had at 40 to 50 million, do you mean that is a Televisa contribution?

That is 40 to 50 million, I said 40 to 45 million. That is 100 percent of the investment.

Okay. I'm having a hard time understanding how they can grow to a million subscribers with that small capex.

I think that there you would have to consider the inventory in terms of [inaudible] that they already have.

Okay. And I guess one last question regarding -

Of course, not only the inventory of new boxes that they already have and they have paid for, but also the ones that they are refurbishing and they're putting out to the market.

Right, okay. Thank you.

I would like to turn back over the floor tical phone sew [inaudible] for any closing remarks.

Well, thank you very much for your participation, and if you have any additional questions, please give us a call.

Thank you. This does conclude today's teleconference. You may disconnect your lines at this time and have a wonderful day.

Thank you, this concludes digital replay.