Grupo Televisa SAB (TV) 2003 Q3 法說會逐字稿

Good morning everyone and welcome to Grupo Televisa's third quarter teleconference. Before we begin, I would like to draw your attention to page 8 of the press release, which explains the use of forward looking statements and applies to everything discussed in this conference call, as well as to the earnings release. At this time, all participants have been placed on a listen only mode and the floor will be opened for your questions following today's presentation. Now, I will turn the call over to Grupo Televisa's Chief Financial Officer, Alfonso de Angoitia. Sir, you may begin.

Thank you, we're very pleased to have you with us for this discussion of Grupo Televisa's results for the third quarter of 2003. With me today is José Bastón, Corporate Vice President of Television.

First, I will take you through the highlights of our financial results for the quarter. Then, we will review the outlook for the rest of the year. [Pepe] will discuss operating results from out television divisions. After that, we'll be glad to take your questions.

The third quarter proved to be another very successful one for Televisa. On a consolidated basis, sales increased 3.3% from last year's third quarter to a total of Ps.5.6b. EBITDA grew 15.9% to Ps.1.8b, and our margin reached 32.6%. A record high for a third quarter.

A major contributor to these results was our ongoing costs discipline. As a matter of fact, for the first nine months of the year, we have reduced costs and expenses by more than Ps.200m in real terms, compared to the same period of last year.

Our Television Broadcasting segment was the primary top line growth driver during the third quarter, with sales increasing 5.7% from the same period last year, to a total of Ps.3.6b.

Our Sales team headed by Alejandro Quintero has done an outstanding job and these numbers demonstrate that the strategy designed by Alejandro for the year was the right one. This revenue of expansion, coupled with our strict costs and expense controls allowed us to generate Ps. 1.5b in EDITDA, which represents an increase of 13.6% over last year's third quarter, and a new EBITDA margin of 43%, which, again, is a record high for the third quarter.

Our Publishing segment also continued its positive trend in sales and EDITDA during the third quarter. Sales increased 3.7% to Ps.444m reflecting an increase in magazine circulation in Mexico and a positive translation effect on foreign currency denominated sales. EDITDA increased 26.1% due to higher sales and a reduction in magazines returns resulting from effective advertising campaigns and point of sales promotions.

As we mentioned during our last conference call, Cablevisión will soon start switching its current analogue subscribers to its new digital service. We believe the strategy will reverse Cablevisión's downward trend in subscribers and, at the same time, will allow the company to move in to a new area of sustainable growth and increased profitability.

Digitalizing the service will stimulate new subscriptions because pirates will be unable to receive the signal once we switch to the digital transmission, but the transition to digital isn't only about preventing piracy. It is also about providing a platform that will allow Cablevisión to cross-sell digital products such as video on demand and interactive games and, at the same time, save valuable bandwidth to provide broadband internet access.

This project will be implemented in stages over a two year period and will be funded by Cablevisión's own resources and operating cash flow.

Innova, our DTH business operating in Mexico, achieved several very important goals during the third quarter. The company issued $300m of 10year senior notes with a coupon rate of only 9 3/8. Innova issued-- sorry, used the net proceeds of the offering to refinance $287m of its twelve and 7/8ths senior notes to 2007. These transactions will generate annual cash interest expense savings of approximately $9.3m, which will boost Innova's free cash flow generation in the years to come.

Additionally, Innova produced another solid quarter of results. Gross active subscribers increased 12.7% from the third quarter of last year to 826,000. Revenues climbed 5.3% and EBITDA rose 10.8% to Ps.293m. Needless to say, we are very pleased with Innova's recent accomplishments and we are more excited about its future prospect.

Televisa's net income increased an outstanding 74.3% from last year's third quarter to Ps.686m driven by a 19.3% increase in operating income. Lower costs of financing and lower non-operating expenses partially offset by an increase in equity and losses of affiliates.

As part of our share, we purchased programs to date, which have bought back 31.6m CPOs for an aggregate amount of Ps.520m. In addition, during the second quarter of the year, we paid a Ps.550m dividend to our shareholders. In total, during 2003, we have returned more than Ps.1m to our shareholders.

Moving on to guidance, considering our year-to-date results, we expect to exceed our initial guidance for the year. We now expect our 2003 television broadcasting segment and consolidated EBITDA margins to reach 41.5% and 31.5% respectively, [meeting] our initial guidance by 150 basis points.

Before turning the call over to Pepe, I would like to further explain the organizational restructure that was approved yesterday by the Board of Directors, which includes the creation of an executive officer to the Chairman.

Many objectives have been achieved since Emilio Azcárraga Jean became President of Grupo Televisa. Among these achievements, I could mention just a few; EBITDA has more than doubled and margins have increased from 15.3% to over 30%. Head count was reduced from over 20,000 to less than 13,000 employees. Administrative expenses have decreased by 66%. The manner in which we sell has changed dramatically after more than a decade of the French plan, and the complete Sales Team has been revamped by Mr. [Quintero].

The Company has regained its dominant position in the Mexican television market. The Company also expanded its agreement with Univision increasing its equity stake and renegotiating its Program License Agreement.

On another side, Televisa has a strong balance sheet with more than Ps.9.6b in cash, net debt of about $400m and a very comfortable debt payment schedule. But, most importantly, Televisa has changed its culture to one that is focused on profitability.

Today, the Company has regained its financial and operating strength and it is in a very good position to take new steps to improve its operating performance and seek new business initiatives that can create value to our shareholders. That it is exactly what our Executive Officer of the Chairman will do; being responsible for overseeing Televisa's operation, setting the objectives and operating [guidance] and the determining the Company's strategic plan.

In addition to Mr. Azcárraga, the office will include Mr. Bernardo Gómez who has, among many other things, completely restructured and changed the image of our newscast. He's one of the smartest persons I have met and he will be essential in this new challenge.

I take this opportunity, also, to welcome the newly appointed CFO, [inaudible] who has been in my team for almost four years and whose responsibilities for the past two years have included budget control and financial planning.

As President of the newly created Finance Committee, I will make sure that the strict financial discipline is maintained, as I have done so in my 10 years as CFO.

With these changes, José Bastón, who has done an exceptional job operating our most important business, will assume additional operating responsibilities. Starting January, Pepe will be responsible of operations for the entire television business, including production, programming local television stations, sales, licensing and programming for paid television segment. Pepe has an upstanding track record, and we are very excited about the prospect of the television business.

Now, I would like to turn the call over to Pepe.

Thank you very much, Alfonso, and good morning to all of you.

We are very pleased to report that during the third quarter we continued to sustain the highest ratings and audience share across the board. Televisa earned 88 of the top 100 most watched programs. From sign-on to sign-off, we achieve and average audience share of 71.4% and, once again, we dominated prime time with an audience share of 71.5%.

Our telenovelas continued to provide a reliable source of viewers and strong revenues are in our prime time line-up. Our 9pm novela called 'Amor Real', which had EBITDA margin of 58% was the highest rated program in Mexican television during the third quarter with a 42% average audience share, and during it's last episode, captured and impressive 60% audience share-audience share.

In addition, our 8pm novelas, 'Velo de Novia' achieved an average 37% of audience share in the month of August-- in the month of August and September, and also in August we launched a new children novelas called Alegrisis Y Rebujo(sp) which achieved an average audience share of 41% during the same month.

We continue to lead in other genres including news, comedy, game shows, sports, movies and kids programming, among others. In this quarter, we launched-- we will re-launch the 3pm game show Cien Mexicanos Dijeron, and in September we began airing our second edition of our reality show Big Brother VIP, providing-- proving both to be tremendous hits and preliminary commercial results are extremely encouraging.

Above all, we are very satisfied with our financial results. Television broadcasting sales grew 5.7% to a total of Ps.3.6b. This revenue expansion, together with our continued effort to control costs allow us to generate to a record third quarter-- record high third quarter EBITDA of Ps.1.5b, which represents a margin expansion of 300 basis points from 40% to 43%, and a double digit increase from 13.6%-- from 13.6% over last year's third quarter.

In our programming for paid television segment, we continue to experience growth in sales as well as in margin expansions. Sales increased 11.2% and EBITDA climbed 49.9%, driven by strong signal and advertising sales in Mexico, together with a 37% reduction in operating expenses.

I am also pleased to report that royalties from our Programming Licensing Agreement with Univision continue to grow. During the second quarter, royalties from Univision increased 25.9% in dollar terms from $19.7m to $24.8m; driven by growth in revenues of Univision and [Galavision] and [royalty] we recently started from the Telefutura network.

Now, we would be glad to take your questions.

Thank you. The floor is now open for questions. If you do have a question, please press the number one followed by four 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. Once again, that is one followed by four for any questions at this time. Our first question is coming from Matthieu Coppet of UBS. Please go ahead with your question.

Thank you, good morning Alfonso, Pepe. I have a quick question about the new Executive Office of the Chairman. I was wondering how much growth should be coming from external acquisition over the next several years that the targeting versus [internally], and will this shift the attention of management away from non-broadcasting division, and what do you intend to do to improve profitability in those divisions as well. Thank you.

Well, I think it's too early to tell, because we will start the office January 1st next year, and you're right in the sense that I think television is being very well run by Pepe, and now we will focus on other divisions and growth opportunities.

As I have mentioned since the last conference call, we're not going to acquire something that is alluded or against our shareholders. You have to keep in mind that the largest shareholder of Televisa is Emilio Azcárraga himself. So, he's not going to operate against his own interest.

So, anything we'll do will be conservative. I think that the track record from 1997 on speaks for itself. So, I guess we will focus on other divisions and try to make them more profitable. I think that there's a lot of space there. I think-- I'm sure that Cablevisión is going to have a much better year in 2004, and also the Publishing segment including Distribution, and overseeing those operations will permit us also to focus on new initiatives and new businesses related to those companies.

Thank you very much.

Thank you. Our next question is coming from Patrick Grenham of Citigroup Smith Barney. Please go ahead with your question.

Good morning. Just to follow-up on that last acquisition question. You mentioned that just-- that 2004 should be a good year. How is the upfront season going so far? I know it's very, very early in that upfront season, but are we seeing good signs that we will see a substantial pick-up increase in upfront spending for 2004? Secondly, you mentioned, is there a focus now on when you are going for acquisitions that your focused on the Publishing side of the business, or are you still-- mainly see yourselves as a TV company going forward? Thank you.

Well, based on your first question, we are currently in the middle of our upfront sale season, so we are still too early to give any specific guidance about the upfront or next year's sales forecast for that matter-- for that matter. Our strategy [seeks] to grow both through price increases and incentives to increase volumes.

In terms of pricing, we increase our prices in real term basis; in most time slots, specifically in non-primetime. Having said that, we are not increasing prices to clients that agree to significantly increase their budgets. So, we're basically, right now, on that strategy, and we are in the middle of the upfront system right now.

I guess, as to your second question, we're a media company. We see Televisa as a media company. It doesn't mean that we're going to focus a lot of our attention or a lot of our time on the publishing segment. It's one of the segments that, we believe, will grow, both in Mexico and especially in the US. Therefore, it's going to be part of the growth plan, but it's not something that will take a lot of time from us.

Okay, great. Thank you.

Our next question is coming from Réné Pimentel of Deutsche. Please go ahead.

Yes. Thank you very much. I wanted to ask you about your other businesses. We saw a significant decline in terms of revenues and also the EBITDA loss there is larger than in the third quarter of last year. Can you give us a little bit more detail as to what this is, and you also mention in your press release that you had operating expenses coming from other business?

I think as to other businesses, the main changes came from movies. As you know, we produce feature films and also we distribute them. The main business there is the distribution of the movies, and it's a cyclical business. It depends a lot on the releases that you have every quarter and every year. Last year, we had a very successful movie in the third quarter, which was 'Scooby Doo', and this year we didn't have very strong releases and, therefore, we lost about-- well, we lost from Ps.107m that we sold last year, we sold Ps.30m this year. So, that was a very important effect.

In terms of EBITDA, although we have been reducing the negatives EBITDA contribution that the soccer teams give Televisa, we still have a Ps.30m negative contribution.

As you know, the paging business has been dying. Last-- two years ago we had 360,000 subscribers. Last year we closed with 104,000 subscribers and now we're down to 62,000. So, it's a business, just this quarter when compared to the same quarter last year, we lost about 30% of the sales and about 40% of EBITDA. So, it's a company that eventually will be reduced to a very, very small unit. So, those are the main changes there.

Okay. In terms of your cable operation, when do you think that the digitalization of the network will be complete, and how much is this going to be in terms of capex for you?

We're going to start in November and it's a plan-- a 24 month plan. Total capex for the project will be around $60m - $70m.

As I mentioned, Cablevisión is going to finance it with its own resources.

Alright. Perfect. Well, thank you very much and congratulations for your results.

Thank you.

Our next question is coming from Whitney Johnson of Merrill Lynch.

Hi. Few questions. The first for Pepe. Can you just give us-- I know you said local sales were up 11% year-on-year, which is a good figure. Could you give us an idea of what local sales actually were? Either the output number or as a percentage of television broadcasting, just so we can get an idea of the secular growth that you have taking place versus what your traditional [face] of advertisers is doing?

Well, the local sales in third quarter were 14.2% of the total sales of the Television segment.

Okay, so television broadcasting?

This year includes Channel 4.

Including Channel 4, which is, as you know, the local station of Mexico City.

Okay. So, in local sales, you're actually classifying Channel 4 as local sales now-- all of Channel 4 sales?

Well we-- yes, the Channel 4 sales have local sales as well as national sport sales, and these are based on local sales only.

Okay, and then in 3Q of 2002, what was local sales as a percentage of total?

3Q of 2002, hold on for one second please.

Okay.

It was around 9%.

Okay, great. Alfonso, can you just talk about next year a bit. You're going to have a lot of political advertising to replace. So, can you just give us an idea of what kind of top line growth you think is reasonable, but, more importantly, what kind of cost controls can we expect both above and below the operating line and on capex in order to be able to drive for cash for growth? If you could give us some sort of hint or preview around your dividend policy for next year?

Yes. Thank you for asking that question, Whitney. I think it's very important to talk about 2004.

We're focused to continue seeing growth in most of our business units.

As I mentioned, both Cablevisión had very poor results this year and we expect to see much better things next year. Also, I think Publishing and Publishing Distribution will have better years next year.

But, as to television broadcasting which is our main business, we want to grow the top line, of course. We feel optimistic in meeting this goal is that, as you mentioned, the main challenge is to compensate the Ps.650m we had of political advertising during the first half of the year.

However, I think we feel optimistic because our upfront negotiations are going well. We feel quite positive about them. Also, next year, we will have 10 local elections. There are 10 governship elections and, surprisingly, the political climate in Mexico is heating up for the 2006 presidential campaign. So, I think, during 2004, we will start to see money being driven to advertising on television for Televisa that has to do with the 2006 presidential campaign.

Also, we will transmit very important sporting events, such as the Olympic Games, and as to soccer, we'll have the Europe Cup and also the Copa America.

So, considering all this, we feel, as I mentioned, positive about 2004. I recognize that it's a challenge to fully compensate this Ps.650m of political advertising, but I reiterate that we're positive.

Then-but, I think our main challenge is to generate free cash flow in an amount similar to this year. This year we'll generate a free cash flow higher than Ps.4b, and if we don't meet our sales goals and the year is not as positive as we think it's going to be, then we will reduce costs and expenses and/or capex in order to generate this Ps.4b of free cash flow.

So, you should feel confident that we will do anything necessary in terms of reducing costs and expenses or capex in order to maintain the four-- or in excess-- the free cash flow in excess of Ps.4b.

Okay. That's good to hear. I guess just two quick follow up questions. Do you have any benchmark of how much local elections have generated in the past, and if you can just comment on your dividend policy for next year?

I think Whitney, that it's very difficult. There's no benchmark because Mexico has changed dramatically in these last years. As you have seen, this Ps.650m that we received for a mid-term election were unprecedented, and since the whole climate-- the whole political climate is heating up, I think, as Emilio Azcárraga says, democracy has become a very good business for us, and more and more. So, I think it's very difficult to have a benchmark.

As to the dividends policy, as I mentioned in the last conference call, if we don't find anything attractive in the next two months in terms of investment for Televisa, and this means an investment or an acquisition that would have to be related to our core business and that will not be diluted for our shareholders, and there I see very few-- I see very small percentage in terms of possibilities of finding this. We will pay a much larger dividend next year. That can-- I mean, we have mentioned an amount of $150m, but I think it will exceed that amount.

Okay. Thanks, Alfonso.

Our next question is coming from Vera Rossi of Morgan Stanley. Please go ahead.

My question is on Univision stake. You mention in the press release that your stake will increase during the fourth quarter, because a recognition of income gain in the merger. My question is how much will be this increase in percentage? One, and the second one, I just want to confirm that that will not [enquire] the Company to use cash to increase this stake. And I have a second after you answer this question on Univision.

Hi Vera. Grupo Televisa's ownership in Univision will, as a result of the merger, as a matter of fact, decrease to-- or be reduced to 10.9% on a fully diluted basis. However, as a result of the merger, Televisa will increase carrying value of its investment in Univision and this is by recognizing the net comprehensive income from this merger, and this will give us an amount of $252m. This is on a pro-forma basis. But, basically, the stake will go down from about 15% to 10.9%.

Okay. I understood now. The stake will stay at 10.9%, it just this stake will value-- you are going to recognize that $225m more in the fourth quarter.

Yes, which is-- it is the increase in the carrying value of the investment.

I see. Okay. My second question is on your EBITA margins of your TV broadcasting business that you increase your guidance for the year. What is driving this increase in EBITDA margins on your TV broadcasting business? Is it better revenues or lower costs, or like going to more profitable business? What is driving this margin expansion?

I think its both higher sales and lower costs and expenses. I think we have been having very good results in terms of rating. As Pepe explained, we had a very good novela, which had huge sales and other shows that have been very, very good in terms of ratings, and that has resulted in higher sales, and also, we have been very, very strict in terms of cost and expenses. So, we have reduced those and, as a result, EBITDA and margins have gone up.

I see. You mentioned before that you increased your prices this year in TV broadcasting relative to last year. Is that correct? That's what I understood?

No, that's not correct. What I said was that we are planning to increase for next year, mostly on a non-prime slot, but for this year our growth was based on volume. Another point to tell you why we see this growth on the EBITDA-- on the EBITDA is because we are making all of the decisions of production and all the acquisitions of [products] based on commercial aspects. We do not make any decision of our television business if it doesn't make sense-- commercial sense and if it doesn't meet out margin objectives.

Okay. Thank you.

Our next question is coming from Jean-Charles Lemardeley of JP Morgan. Please go ahead with your question.

Yes. Good morning. My questions are regarding Innova. First, what do you think the outlook is for this proposed elimination of the 10% tax on pay TV services and, if it is approved, what would be the strategy in terms of pricing? Would it be passed on to customers at the Innova and Cablevisión or kept on as extra margin? The second question is, you have capitalized the shareholder loans this quarter, but the book value is still significantly negative. Is there-- were you thinking now would you be ready to re-capitalize Innova going forward?

As to your first question, the President of Mexico announced the repeal of special tax some months ago, however, nothing has happened because I think that this is now entangled into the tax reform that they will try to pass in the next weeks. So, hopefully, as a result of that tax reform, or as a result of the repeal that the President himself announced, we will get rid of the special tax, and our strategy there would be to maintain prices flat. That is, we will not be reducing prices.

Okay.

Then, as to your second question, I'm sorry, I didn't...

No, [inaudible] you capitalized the shareholder loans this quarter, but the equity-- shareholders' equity is still negative at Innova. Is there a-- what is your thinking there? Would you be ready to re-capitalize the company going forward?

No, I think, I mean, we capitalized the loans plus accrued interest, and I think we have strengthened the balance sheet of Innova. Innova, just last year, generated an EBITDA in excess of $100m, and this year it will exceed that amount. So, we placed the new bond, as I explained, and we're refinancing the rest of the debt, of the $88m that are remaining as part of the 2000-- of the bond, of the previous bond. So, I think the capital structure in Innova is fine as it is for the time being.

Okay. Is there anything you can tell us in terms of the prospects of a potential consolidation with DirecTV at this stage?

Yes. I think that there are many scenarios of possible combinations of Innova and DirecTV that may include the combination of subscribers in general not buying DirecTV in Mexico. The value creation of this combination is very interesting and will be very good for us. We will combine-- combining the two platforms, we will have more than 1 million subscribers, and we'll generate sales in excess of Ps.5b. So, it will become a huge company and the dominant paid television company in Mexico by far.

So, I think the prospects are very good. We feel very excited about them. But, however, there are many scenarios of possible combinations and we'll have to wait and see what happens in the next month. But what I can tell you is that we'd love to do it and we're working very hard.

What would be your sense of timing if the merger were to close in the US, say, very soon? I think it's expected to close in the next couple months. How fast could we see something happen in Mexico after that?

Very soon.

Okay. Thank you very much.

Thank you. Our next question is coming from Chad Clark of [Paris]. Please go ahead with your question.

I just wanted to get a better understanding of-- in a quarter that has very good free cash flow generation I'm sure, why net debt expanded versus last quarter? Can you walk through the changes and whether or not and how much was FX related?

Yes, I think as far as the cyclical nature of the business and it's just that it's the third quarter, but it's nothing material, it's just the cyclicality of the business.

Very good.

Thank you. Our next question is coming from Eric Olum of ING. Please go ahead with your question.

Yes. Hi. Good morning, Gentlemen. You gave us some guidance on the TV segment that you're going to beat your original estimate by 150 basis point for your margin. Can you give us some guidance on the overall business as well?

Well, I think that the business, as you can see, is doing very well. We have been having very good results and that's why we have increased the guidance. But, in general, we fell very comfortable with a new guidance. We might be exceeding that hopefully and I guess that's the feeling that we have; a very positive one.

Thank you.

Thank you. Our next question is coming from Dan [Prikowski] of Schroeders. Please go ahead with your question.

Hi, Alfonso. I've got three questions. First, is on [inaudible]. We didn't seem to have any information on happened in the third quarter. Could you comment on that. Second one is, could you give us an update on where you are in terms of resolving Televicentro? The third question is that Mexico has decided to-- has defined its digital platform going forward for television. Could you say what impact that might have on you?

Hi, Dan. To [inaudible] I think the numbers, the last numbers that I have seen are there on target. They had Ps.120m in terms of EBITDA. So, I think that, I guess they won't have significant improvement in terms or, or exceed our expectations. But, they're going to be on target.

Then on Televicentro, I think that, as we have mentioned, we don't feel pressured by this issue. It's [inaudible] that are against Emilio Azcárraga and not against Televisa expire in mid-2005. So, we want to be proactive and solve the whole situation starting next year. We have started to look at alternatives. I think, as I have mentioned, we will only do things that are positive for our shareholders and, as I mentioned, we have never considered a premium or anything of that sort for the Televicentro shareholders. So, at the end of the day, it has to be something positive for everyone and we'll be proactive and try to solve it in the first semester of next year.

Then, as to the third quarter, I didn't hear the question.

The third question was on-- Mexico has defined its digital platform going forward, it's digital standards going forward. It happened about a couple of weeks ago. Can you comment on how that might impact the industry?

Well the Mexican radio and television chamber is about to sign an agreement with the Mexican authorities with a communications ministry that will establish the terms and conditions for the digitilization. It's a long term plan, as you can imagine. If in the US, it has taken longer than expected, in Mexico it will take longer. I think the first step of the plan includes Televisa and Television Azteca are starting to transmit in digital form. I think with low power stations and this, I remember, includes seven cities by 2006. I think as to the first stage in these seven cities with low power stations requires a very, very small investment and the initial deadline that the Mexican government is thinking about for the national signal is 18 years. So, we have sufficient time, I think and, as I mentioned, this first stage that goes until year 2006 requires a very small investment.

So, I mean we're not worried at all about this.

Okay. Thank you very much.

Thank you. Our next question is coming from Rusty Johnstone of Harding Loans and Management. Please go ahead.

I've got a reference question regarding the local ad sales. I think at some point in the past it was supposedly an earning's growth driver as you would reduce your exposure to the major multinationals. It seems to be coming through. Is there [inaudible] potential there in terms of possibly enhancing profitability and top line sales? Or is there something that might have been overestimated in terms of getting more local advertising in your mix?

Well, we definitely see opportunities on local sales. We see that as a good opportunity of growth because of what you said a little bit ago. We're concentrating mostly on the local markets and not on the big clients that are already have been buying this kind of advertising from us, but we're doing all kinds of different sales strategies to be able to bring those local clients based on giving different kind of incentives to our sales people in the different markets. So, we definitely see opportunities of growth in local advertising.

Okay. Thank you.

Okay. Once again, as another reminder, if you do have a question, please press number one followed by four on your telephone keypad at this time. Our next question is a follow-up and it's coming from Patrick Grenham of Citigroup Smith Barney. Please go ahead.

Could I just ask you to go back again to the acquisitions. It seems that you're talking about if there are no acquisitions in the next two months, you could expect to see dividends of above $150m next year. You also say that an acquisition has to be accretive. Are you saying that you're specifically thinking of a specific acquisition, or are you saying you're just beginning in the process of looking at acquisitions, because two months seems to be a very short time in order to look an acquisition and decide on it, and if you were to make some sort of acquisition in the next two or three months, could we-- would we expect it to be some-- would it be in the US, would it be within Mexico, or a we looking at, is there something out there that we should be looking for in the very near future?

Yes. I don't think-- I mean, we're not looking into any acquisitions as we speak. What I mentioned before, and this goes back to the previous conference call, is that we would do transaction-- I mean there was a concern in the market as to what we were going to do with our free cash flow, and what I mentioned is that we would do acquisitions for the growth of the company, but if they were positive for our shareholders, if they were accretive and if they're related to the media business. This can include Mexico and the US. But what I'm saying is that does, as in a previous conference call, I said if throughout the year I don't see anything interesting in terms of acquisition, we would pay a much higher dividend using our free cash flow. That's why-- I mean it's not-- what I'm saying is that, just going back to the last quarter, if we don't see anything interesting throughout the rest of the year, which is basically two months, we're going to pay a much higher dividend next year, and I think that we would propose to the Board of Directors approval of a dividend in excess of $150m.

I think-- I mean, I want to reiterate that we're not looking into any acquisitions as we speak, or anything material. As a matter of fact, we're looking into a divestiture that I think will happen soon, which is a very small company that we own is a dubbing facility, a dubbing company, and that's it for the rest of the year. I don't think we'll find anything material in 2003.

So, that means, as a result of that, we will pay a much larger dividend in 2004 and, going forward, we will grow the Company and we will make acquisitions only if, being conservative, we believe that they are related to our core business and they're acquisitions that are accretive for our shareholders.

Okay.

We think that makes sense. I think that, as I mentioned before, our track record speaks for itself, and we have, hopefully, not done anything stupid.

Right, Right. Okay, great. Thank you very much.

Thank you. Our next question is coming from Chris Recouso of Bear Stearns. Please go ahead.

Good morning, Gentlemen. Just two follow ups, or two clarifications. I believe that Pepe was suggesting some price increases in the non-primetime segments next year. Correct me if I'm wrong, but your primetime generates around 65% - 70% of revenue and profitability. Right?

Yes. That's right, between 60%-70%. You're right.

Okay. So, we're looking at a variance in terms of your pricing increases at a segment of your revenue's around 30% - 35%. That's what you're increasing right?

Yes, well, actually we're increasing our pricing on real term basis in most time slots, but mostly on non-primetime. That doesn't mean that we're not increasing, for example, in other channels in primetime, but--

Okay. Yes, because I know that TvAzteca for instance had made a pretty public notice of hoping that you guys were going to push pricing increases so that they could move into that slip stream. So, it seems like the methodology this eye is migrating a little bit from last year in terms of, if my understanding is correct. Last year, you were looking at flat pricing and you were pushing utilizations.

Yes, that's right. The strategy of this year 2003 was mostly on volume. This new strategy is based on a mix because, as I mentioned, we might not increase prices to clients that agree to a significant increase in the budget. So, if you [inaudible] you know that you have to do it different clients differently.

Sure. Sure, and in terms of just neighborhood guidance for instance. Would you be willing to suggest if it's going to be high, single digit, or low double-digit at price increases that you're seeking in the non-primetime area? Or are you not sure yet?

No, I think it's too early to call.

Too early to call. Okay. My second question, I concede upfront that perhaps I'm missing something here, but in terms of my quick calculations, I'm coming up with a cash flow negative, roughly, $40m in a quarter. Can you just walk me through the mechanics of your cash flow for the quarter, because, as I said, perhaps I'm just missing something here.

You come up with what, I'm sorry.

I'm coming up, with a quick calculation, of something like negative $40m free cash flow for the quarter, and I think it's based on a pretty large swing in working capital. Is that just because it's seasonality in terms of advertising obligations, or am I missing something?

Yes, I know, but we're not having negative free cash flow this quarter. What I can say, in general terms, is that in 2003, we expect to generate, as I mentioned before, more than Ps.4b in free cash flow after capex, [deforeign] investments and the dividends and the stock repurchases. So, we'll stick to that number, to the Ps.4b. I think we'll exceed it, and this is for the full year.

I guess, I can go through it with specificity with you on the phone later, but just specifically in terms of working capital, I'm coming up with a negative adjustment to this quarter. Is that specifically just because advertising obligations, obviously, are drawn down throughout the year, or is there something else going on there?

Yes, I think we can go through the specifics, but what I can tell you is that cash-on-hand and temporary investments is in the amount similar to the last quarter. As a matter of fact, it has grown. So, I don't think-- no, I'm sure that we don't have a negative free cash flow in the quarter, but we can go through your numbers.

Okay, later on then.

Yes.

Thank you.

Thank you. At this time, I would like to turn the floor back over to you for any further remarks.

Well, thank you very much for participating in this call. We're very happy with our results and I'm sure that you're also are very happy, and I'll see you next year. Thanks.

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