Grupo Televisa SAB (TV) 2006 Q3 法說會逐字稿

Good morning everyone, and welcome to Grupo Televisa's third quarter 2006 conference call. Before we begin I would like to draw your attention to page eight of the press release, which explains the use of forward looking statements and applies to everything we discussed in today's call and in the earnings release. I will now turn the call over to Mr. Alfonso de Angoitia, Executive vice President of Grupo Televisa. Please go ahead sir.

Thank you welcome. Good morning we are pleased to have you join us for this discussion of Grupo Televisa's third quarter 2006 results. With we today, are Jose Baston, Corporate Vice President of Television and Salvi Folch our Chief Financial Officer

First I will take you through the highlights of our financial results for the quarter. After that [Pepe] will discuss the operating results of our television segment. Then we will be happy to take your questions.

Televisa delivered record results in the third quarter driven by strong operating performance in all our business segments. On a consolidated basis, sales increased 9.1% to MXN9.2b. Operating income before depreciation and amortization increased 16.5% to MXN4.1b and our margin reached 45.1%.

In addition, net income rose 43% to MXN2.4b. Sales in our television broadcasting business increased 4.5% to MXN4.9b. These results were driven by strong ratings, in particular in our NoveLa and reality shows, and by advertising sales associated with the transmission of two quarter finals, the semi finals and the final of the 2006 Soccer World Cup.

In addition, we were able to keep our costs and expenses virtually flat year-over-year. As a result, our operating income before depreciation and amortization increased 8.8% to MXN2.5b and we achieved a record margin of 50.7% for the quarter.

In our Pay Television networks business, sales rose 14.6% to MXN338m. And operating income before depreciation and amortization increased 21.7% to MXN179m. This growth resulted primarily from higher sales to Pay Television platforms in Mexico and Latin America, and by an increase in sales of TuTV in the United States.

Sales of our programming export business increased 18.9% to MXN575m. And operating income before depreciation and amortization increased 55.7% to MXN278m. These results were driven by higher royalties from Univision and by an increase in exports to Latin America and Europe.

Royalties from Univision amounted to $34.6m and included $1.6m from Puerto Rico. In addition as you may recall from our discussion, our second quarter results, our second quarter royalty figure, included an estimate for the month of June. Because, at that time, we reported our second quarter results, Univision had not yet provided a royalty figure for June. The royalty we actually received in June exceeded our estimates. And, therefore, we have included a positive adjustment of $2.3m in our third quarter results.

Sales in our publishing division increased 4.6% to MXN678m. And operating income before depreciation and amortization increased 8.6% to MXN140m. These results were driven by the consolidation of Editora Cinco during the first quarter of this year, by increases in advertising sales in Mexico and abroad, and by an increase in magazine circulation outside of Mexico. These increases were partially offset by a negative translation effect of foreign currencies denominated sales, which amounted to MXN30.4m and by lower magazine circulation in Mexico.

Shifting to our Paid Television businesses, Sky added very appealing content during the third quarter, in order to reduce expected increase in churn, resulting from the end of the World Cup. This content included, among others, the exclusive broadcast of all of the Spanish Soccer League games, which began airing in August and a new reality show entitled [Alvaro], which began airing in July.

As a result, we enjoyed better than expected subscriber retention, and financial performance during the third quarter. Sky added 21,000 subscribers during the quarter bringing its total subscriber base to 1,411,000. Compared with Lat year's third quarter, sales increased 13.8% to MXN1.8b, and operating income before depreciation and amortization grew 30% to MXN939m reaching a record 50% margin.

Cablevision added 17,000 subscribers during the quarter, bringing its total subscriber base to 475,000. In addition, the number of Cablevision's broadband customers reached 86,000. Compared to Lat year's third quarter, sale increased 33.2% to MXN497m. And operating income before depreciation and amortization increased 60.8% to MXN208m and the margin reached 41.9%. This growth was driven by the conversion of our system from an analogue to a digital format, and by the growth in Cablevision's broadband customer base.

Sales in our radio division rose 14.8% to MXN99m and operating income before depreciation and amortization grew 95%. These results were driven by advertising sales associated with the transmission of the 2006 Soccer World Cup games in July, and by sales generated by our affiliation agreement with Radiorama.

Sales in our other business segment increased 18.7% to MXN368m. And operating loss before depreciation and amortization increased from MXN13.5 to MXN38.2m, driven primarily by higher sales and costs associated with our film distribution and gaming businesses.

La Sexta our free-to-air channel in Spain had an outstanding third quarter. It's broadcast over the 2006 Soccer World Cup and Basket Ball World Cup Championships during the summer were key in positioning La Sexta in the minds of the Spanish audience. During the third quarter, La Sexta was also able to secure, for the next three years, the exclusive over the air broadcast rights for one of the 10 soccer -- Spanish Soccer League games played each weekend. The remaining nine games are broadcast through Pay Television. This exceptional programming enabled La Sexta to exceed its audience share and sales budgets for the second consecutive quarter.

Moving on to the outlook for the full year, we continue to expect our television broadcasting business to achieve high single digit sales growth. In addition, we expect television broadcasting margins to exceed 50%. And on a consolidated basis, we see our margin reaching 42%.

Finally in terms of uses of cash, during the third quarter we repurchased more than 44m CPOs for approximately MXN1.8b. Thank you for your attention and now I'll turn the call over to Pepe.

Thank you Alfonso good morning everyone, and thank you for joining us. We are very pleased with our third quarter performance. We achieved excellent results, reaching the highest sign on to sign up audience share of the last nine quarters.

In Channel 2, we saw our best results since 1999, with a weekday prime time audience share of 40%. Overall we achieved a weekday, primetime audience share of 72.8% during the quarter. And more than 80% of the countries highest rated programs were aired by Televisa.

This was an especially challenging quarter, given that we had to satisfy audience expectations following the Soccer World Cup. Because we know that TV viewers have traditionally more demand in after big events, such as the World Cup and the Olympics. We focused our strategy on reaching the current demographics by offering innovative concepts, and a complimentary set of products throughout our networks.

An example of the complimentary offer was the launch and positioning of the popular American series' such as CSI and Prison Break, to attract young viewers to Channel 5. The launch of this series represents the starting point of our strategy to reach more young people, one of the most difficult targets and one in high demand by other [inaudible] places. Meanwhile we kept our traditional family audience tuned to our Telenovelas on Channel 2.

In terms of innovation in this quarter, we launched [Amor Mio] a new sitcom with amazing results. On average, this new show captured an average of 39.4% audience share during the quarter, and attracted advertisers with its family friendly content. This show helped to compliment prime time on Channel 2, where the Novela La Fea Mas radio continues to be a phenomenal success with an average audience share of 48.7%. La Fea Mas Bella is the series responsible for keeping Univision, as the highest run network in the [stand] slot amongst the [demo] 18 to 34 in the United States, out performing the four major U.S. networks.

Our preference Sunday show Bailando por un Sueno have achieved ratings at almost double those of [La Cavelli], the best show ever produced by our competition in Mexico.

We're also licensing this format together with previews of [Bailando] and [inaudible] format an increasing number of -- to an increasing number of TV stations around the world, in countries such as Argentina, Columbia, Romania and more recently Nicaragua, Paraguay and Panama with great results. In Panama, the show produced locally with Televisa's support was the highest rated program in the country, achieving and audience share of 52.5% with its initial episode. We're also negotiating the development of this format in Turkey, the United States, Russia and Slovakia.

Looking ahead, we expect to meet our full year sales and EBITDA guidance in our television broadcasting business. We are delivering and will prepare to deliver more of, more of the programs that advertisers are demanding in what is traditionally a period of high advertising expenditure. During this quarter, during the last quarter, and next year we will launch several new programs aimed at [inaudible] enforcing our channel's complimentary offerings. We're launching a series targeted at young viewers, developed and produced entirely within Televisa. Like El Chavo, [inaudible] a cartoon based on our well-known and highly successful [inaudible] channel. Thank you for your attention and now we will be glad to take your questions.

Thank you. The floor is now open for questions. [OPERATOR INSTRUCTIONS]. Our first question is coming from Jessica Reece-Collins with Merrill Lynch. Please go ahead.

Hi thank you. Hi Alfonso I've two questions. One is on Univision, what options would you consider if you're not able to reach any agreement with the private equity consortium?

And then second question is on cable, in your press release you mentioned plans to spend somewhere between MXN250 and MXN500m over the next three years, could you clarify what -- where you'll spend it?

Yes I think just to your second question Jessica, we believe that there's an opportunity, in terms of consolidating the cable industry in Mexico as a result of convergence. I think that new entrants are coming into the market into the video market. And, therefore, we believe that in order to have a strong competitor we -- that there's an opportunity in terms of consolidating that market. We'd love to participate in that consolidation. As you know, we have about 50% of Cablevision in the city of Monterrey, which is the second largest and most important city in Mexico. And so, we would like to look at that market and take advantage of any opportunity that comes up.

And as to your second question that has to do with Univision, we would not like to speculate as to what will happen. Apparently the private equity group that bought that company will close the deal in the first quarter of next year. So, let's see what happens then, but we would not like to speculate as to what will happen at this point.

Okay thank you.

Thank you our next question is coming from Vera Rossi with Morgan Stanley. Please go ahead.

thank you. I have two questions. The first is Sky Mexico and then the second one is one the upfront season. For the Sky Mexico, where should we see margins going forward, where do you think margins are going to be sustainable for the medium to long term?

And on the upfront season, so far if what is the price increase if any, you have for '07, and what are the expectations for '07 based on what you have seen in the month of October? Thank you.

Hi Vera. As to Sky, I think the sustainable margins would be in the mid 40s. We achieved 50% margin this quarter, which was a fantastic quarter, as I mentioned. We expected to have a much tougher quarter because of the hangover of the World Cup. However, as a result of having new content, very appealing content for our subscribers, especially the games of the Spanish Soccer League, we were able to maintain the subscribers and to grow the base. So we're very happy with the results of that company.

Costs and expenses are under control, in terms of content, and in terms of general expenses so, we're very happy with the development of that company. I think that Sky will have a fantastic 2007. However, I think that sustainable EBITDA margins will be around mid 40s.

Vera, as for the upfront season we are, as we speak, starting negotiations with, of course, all the different players that there were last year and we want them to be this year. So, it's too early to call about any kind of pricing or kind of plans based on our upfront.

Okay. And just one follow up on the Sky Mexico. When you say a fantastic '07, what is the level of subscriber growth you are expecting for next year?

We haven't finalized our plan for next year. That will happen in the following month. So, I would not like to give out a number because we haven't finalized the plan for '07.

But should we expect a similar performance, when we compare to '06 or is it too early to say?

That would be difficult because we had the World Cup, and that was a fantastic tool in order to capture subscribers. We will reinforce the content that Sky will have for that purpose but we don't have a number. And I think performance will very good next year. But we haven't finalized the plan in terms of number of subscribers that we would like to achieve in '07.

Okay thank you.

Thank you our next question is coming from Michael Kopelman with Merrill Lynch. Please go ahead.

Good morning gentlemen. I've got two questions for you. First of all can you can you discuss your plans with regards to share repurchase moving forward? You're pretty aggressive this quarter. I'm wondering what your expectations are over the coming 12 months, one?

And two, one for you Pepe. If you actually adjust for political and World Cup, and you don't have to give us the numbers of them, but if you look at it over this quarter relative to the third quarter 2005, what do you think the normalized underlying growth in advertising spend has been? Thank you.

Hi Mike, well as you saw during the quarter we bought back approximately $200m, and we will continue to do that as we go by. We're limited because of the volume rule as to repurchases. So were able to buy about $4m every day. So we will continue to buy back our stock and we'll be of opportunistic about it. So you'll see more repurchases going forward.

To answer your question in the comparison between the third quarter '05 and third quarter '06. Remember in '05 we had revenue from political and in '06 we had revenue from World Cup, from the last part of the [inaudible] so we think balance is basically the comparison between both quarters.

Would you say that the political revenue was a little bit higher than the World Cup revenue? Or do you think they were really equal?

I think it is pretty similar.

Okay so something in the range of 4.5 to 5% [allowing] growth. Right, thank you guys very much.

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

Good morning. I have two general questions. First of all could you give us an update on the lottery business and the bingo business? And when are we going to see a lottery launch?

Secondly, you mentioned that you're open for acquisitions in the cable business. How much more do you think you can grow Cablevision as it is?

And secondly, you seem to have anti-trust problems when you try and make acquisitions of other cable companies. Do you think you'll have to come to some sort of an arrangement with the competition authorities, in order to allow them to get rid of some assets or something like that, in order to allow yourself to expand in the cable TV business?

Hi Patrick, as to your first question, we expect to launch our first lottery number draw by -- before year end. And we have signed agreements with several convenience stores in Mexico like [Oxo], [inaudible] [Mexicana, Chedrawi] and others. We have installed 1,500 terminals and we expect to have a total of 4,000 terminals by the end of November. We currently have four bingo partners, one in the city of Puebla and three in Mexico City. And we expect to open six more facilities before May of 2007.

So, although it takes longer than we had expected to install the terminals for the lottery business. I think that it's going, and it will start before year end. And as we have talked about, I think it's going to be a very good business.

As to cable, there's a huge opportunity I think for Cablevision in Mexico City. It's the only cable company operating in the largest city in the world with 1.5 million homes [inaudible]. So, penetration is still low and I think that that's why it has a huge opportunity. Now that we have migrated to the digital network, that gives us an opportunity also to offer value-added services to those homes. And I think -- so I really think that the prospects of that company are great.

As to the acquisition of cable companies and consolidation of that market and the Anti-Trust Commission, I think the whole industry is going to development and is going to change very fast as a result of the convergence rules being issued by the Minister of Communications. It will have no entrance into the video markets and very strong companies coming in. So, I think that will change the conditions of the market in general.

So I think the Anti-Trust Commission, as a result of convergence, should take a look at this industry in a different way. I think they will do that and because of the new entrants it would be a much more competitive market. And we believe that the solution for the cable industry will be consolidation.

Do you think there would be changes in the rules in broadcast TV in order to facilitate that composition?

No, I think it's more Pay television than broadcast television, and the rules associated with broadcast television.

Okay, okay thank you.

Thank you. [OPERATOR INSTRUCTIONS]. Our next question is coming from David Joyce with Miller Tabak. Please go ahead.

Thank you. Can you discuss your -- if there is any update or progress in your -- the video streaming on your portal? And what sort of dial up and broadband penetration do you see in your markets that, would allow that to become a viable business? Thanks.

Well we are planning to make a big announcement in the first two weeks of November, based on our streaming and basically new media study as a group. So we'll let you know exactly [inaudible] we are going to be doing [inaudible], but we have been doing for a while. But we are announcing with more strategy based plans as Televisa Group.

Alright thank you.

Thank you. Our next question is coming from Philip Remek with Guzman. Please go ahead.

Well I was also going to follow up on new media and ask if perhaps you would consider acquisitions within Mexico, or even in the U.S. regarding things like web, video, social networking, things that are in high growth areas that could involve video distribution in the coming decade? I'll just throw that out there and let you answer it.

Hi Phil. I think that Televisa has all assets in the world both in terms of content, and also in terms of promoting that content to develop these type of ventures. So, more than thinking about acquisitions, as Pepe was saying we're going to announce our strategy and what that has to do with the digital world. But we believe that we can develop those assets for the Hispanic world, and we're pretty far advanced in doing that.

Okay and I'll also point out the example of Yahoo-Telemundo as one such collaboration. So, could collaboration, third party alliances be something you could work toward?

That's a possibility, yes defiantly.

Okay thank you.

Thank you. I would like to turn the floor back over to you for any further closing remarks.

Well thank you. We're very happy with our results and I think we have had a fantastic year up to now and we'll see you next year. Thank you.

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