Grupo Televisa SAB (TV) 2008 Q1 法說會逐字稿

Good morning, everyone, and welcome to Grupo Televisa's First Quarter 2008 Conference Call.

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 we discuss 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. Good morning. We're pleased that you have joined us for this discussion of Grupo Televisa's first quarter 2008 results. With me today are Jose Baston, Corporate Vice President of Television, and Salvi Folch, our Chief Financial Officer.

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'll be happy to take your questions.

In accordance with the guidelines provided by the Mexican financial reporting standards, beginning this year, we will no longer recognize the effects of inflation in our financial results. Therefore, our first quarter 2008 results are presented in nominal Mexican pesos. Also as required by Mexican financial reporting standards, we're presenting our first quarter [2007] results in Mexican pesos of purchasing power as of December 31, 2007. These numbers are not directly comparable. In order to provide comparable figures and, since, from now on, we will report in nominal terms, we included in our press release our first quarter 2007 segment results in nominal terms. In our discussion today, we will compare nominal first quarter results for each year.

In the first quarter, consolidated sales increased 16.4% to MXN 9.5 billion, operating segment income increased 11.1% to MXN 3.4 billion, and we achieved a 35.5% margin.

Our television broadcasting business exceeded our expectations. Despite the unfavorable comparison resulting from the fact that this year's Easter holiday fell in the first quarter, sales increased 2.3% to MXN 3.8 billion, and operating segment income was virtually flat compared with last year's first quarter. These results were driven by strong ratings, primarily on Channel 2.

Our pay television network business also delivered positive results. Sales rose 16.8% to MXN 463 million, and operating segment income increased 19.3% to MXN 283 million. This growth was driven by higher sales to pay television platforms in Mexico, Latin America, and Spain and an increase in sales of TuTV in the United States and an increase in advertising sales.

Sales in our program and exports business increased 10.5% to MXN 578 million. This growth was driven by a 7.8% increase in royalties from Univision, which amounted to MXN 32.2 million for the quarter, and by a one-time royalty adjustment of MXN 4.7 million.

The royalty adjustment comes from payments that Univision had made under protest in prior years. Univision informed us during the first quarter that these payments are no longer in dispute. These royalty increases were partially offset by a decrease in exports to Europe, Asia, and Africa and by a negative translation effect on foreign-currency-denominated sales that amounted to MXN 14.4 million.

Operating segment income increased 3.9% to MXN 245 million, driven by higher sales that were partially offset by an increase in programming costs and higher operating expenses.

Sales in our publishing business increased 22.8% to MXN 727 million. This growth resulted from an increase in revenues from magazine advertising and circulation outside of Mexico, due primarily to the consolidation of Editorial Atlantida. This was partially offset by a decrease in circulation sales in Mexico and by a negative translation effect on foreign-currency-denominated sales that amounted to MXN 5.2 million.

Operating segment income decreased 8.6% to MXN 49 million due to an increase in costs and operating expenses in Mexico.

Our pay television platforms continue to deliver strong results. Sky added 57,000 subscribers during the first quarter, bringing its total subscriber base to 1.642 million. Sky continued to expand its operations in Central America. In addition to Costa Rica and the Dominican Republic, Sky began operations in Nicaragua and Guatemala, closing the quarter with 55,000 subscribers in that region. Compared with last year's first quarter, sales increased 10.2% to MXN 2.1 billion, and operating segment income grew 12.1% to MXN 1 billion. Our margin was 49.5%, a record first quarter margin.

Cablevision added [32,000] revenue-generating units, or RGUs, during the first quarter, bringing its total RGU number to 727,000. This includes 552,000 video, 160,000 broadband, and 15,000 telephony subscribers. Compared with last year's first quarter, sales increased 90.8% to MXN 1 billion, and operating segment income increased 62% to MXN 327 million. Our margin was 31.1%. This increase was driven by the consolidation of Bestel, by increases in the Company's RGUs, and by a 3% price increase that became effective in March 2007. Excluding the operations of Bestel, Cablevision sales increased 18.9%, operating segment income increased 33.4%, and we achieved a margin of 41%.

Moving on to our gaming business, we currently have 16 bingo parlors and approximately 5,400 electronic bingo machines in operation. In our lottery business, we continue to work with Scientific Games to improve our distribution network, and sales are gradually increasing. We currently have more than 5,500 lottery terminals installed in convenience stores throughout Mexico.

Finally, as part of our stock repurchase program, during the first quarter, we repurchased 10.4 million CPOs for an aggregate amount of MXN 504 million. At the meeting yesterday, our Board of Directors resolved to submit to our shareholders meeting a proposal to pay an extraordinary dividend of MXN 0.40 per CPO, in addition to our ordinary dividend of MXN 0.35 per CPO, for a total of MXN 0.75 per CPO. The total amount of the dividend will be approximately MXN 2.2 billion. If approved by our shareholders, this dividend will be paid in May.

Thank you for your attention. Now I'll turn the call over to Pepe.

Good morning, everyone, and thank you for joining us.

Our content continues to deliver strong results. During the first quarter, Televisa earned 71 of the top 100 run programs in Mexico and 34 of the top 50. Our Telenovelas garnered excellent ratings and audience shares during the quarter. Our 8:00 p.m. Novela "Las Tontas No Van Al Cielo" garnered an average audience share of 43.8% during this quarter. And our 9:00 p.m. Novela "Fuego En La Sangre" drew an average audience share of 48.5%. Together with our other popular programs, we achieved an average sign-on to sign-off audience share of 72.1% with this quarter. The strong performance of our Novelas is the result of our well-structured planning process that involves deep evaluation of each part of the production system.

In addition, we're about to air on Channel 5 two new series as a result of our constant search for new and profitable demographics - one in the second season of the actual series, "El Pantera; another is (inaudible), a brand new adventure comedy series in two commercially attractive audiences.

Finally, we are promoting our new reality show, (inaudible), which will be launched May 18. Besides expecting good audience for this show, there are many product introduction opportunities that will drive profitability (inaudible). This program is our version of the successful reality show, "The Biggest Loser."

Our balanced mix of programming enables us to attract a broad cross section of viewers in the demographics that our advertisers seek. For example, Channel 2, which targets families and women, has eight of the ten-best-rated programs in the quarter, and Channel 5, which attracts mainly children and young adults and features such hits as "Law and Order," "Criminal Intent," "House," and "Drake & Josh" and 33 of the top 100 programs in the quarter.

We continue to export some of our most popular programs and formats around the world, and we keep working on our co-production strategy, with agreements in several different countries. For the first time, we are implementing our co-production strategy in Asia. In the first quarter, we started the shooting of our first co-production in China with the script of "La Fea Mas Bella," or (inaudible). This script has proven to be a great success in Mexico, the United States, Latin America, and many other countries around the world, and we expect to begin transmissions in the second half of 2008 to China's Hunan TV, one of the country's largest TV stations. In France, we are building an alliance with JLA Productions to co-produce our format for the European markets. We are actively looking for new opportunities in other countries, mainly in Europe and Asia.

Televisa made a strategic alliance agreement to distribute NBC's universal Telemundo content in Mexico across multiple platforms, including broadcast television and pay television and emerging [video] platforms. Beginning in April, Televisa's Channel 9 is shooting the broadcast of more than 1,000 hours of Telemundo's original programming per year.

In the pay TV arena, Televisa network maintains its sustained growth and financial strength with a first quarter EBITDA margin of 60.6%. We are currently developing a strategy to produce first-window content for pay television, which will bring more quality to our offer and important product integration opportunities. As of the month of March, our pay TV channels reached 20 million pay TV customers worldwide. We remain committed to integrating and cross promoting all of our business segments, and we'll continue to produce exciting content, with a view toward maximizing its value for (inaudible) to realization, making sure that we always have the best content over all the platforms.

Thank you very much for your attention, and now we're ready to take your questions.

(OPERATOR INSTRUCTIONS). Our first question is coming from Gordon Lee of UBS.

I have a couple of questions on the TV broadcasting side, which obviously posted excellent results. And I was wondering whether the surprise relative to what you were expecting was a function of more spot sales than you thought in the first quarter or whether you saw your customers using their up-front deposits at a quicker pace than you had-- than you would have previously anticipated?

Another question was just on the margin. Obviously, the revenue surprise boosted the margin, but it was quite a bit above what you would have expected for the first quarter. So my question is - Was there something on the cost containment side that also led to that? And do you still think that, for the full year as a whole, 100 basis points contraction in the TV broadcasting margin because of the change in accounting is still what we should expect? Or, because of the good first quarter, should we see a higher margin for the year as a whole? Thank you.

For your first question, the growth in sales is definitely based on the good results of our ratings. And the margin-- The cost is totally in line. This whole growth of ratings, which definitely turned out to be better sales than we were expecting through the quarter - that's why we've had a bigger margin and, of course, more sales than what we were expecting.

As to the margin, we continue to expect the margin to be the same as last year's. However, in comparable terms, it's going to drop about 1%.

Perfect. Thank you very much.

Thank you. Our next question is coming from Jessica Reif Cohen of Merrill Lynch.

I have two topics, one on Sky Mexico. What impact do you expect from-- Well, do you expect there to be new satellite competition? And, if the answer is yes, what impact do you expect?

We have read in the newspapers here in Mexico that two or three new concessions have been or will be granted in the near future. So we expect competition, of course. However, I think that Sky is well prepared to face competition. Sky now has more than 1.6 million subscribers. It has a very well established product and also a brand in the Mexican market and, now, in Central America. So we believe that Sky is in a very strong position to compete against any new DTH venture.

Will you have to provide your programming to other platforms?

Under the rules that we agreed to with the antitrust commission in Mexico, yes, under certain circumstances and depending on the coverage of the new operators, we will be obligated to sell the content to them.

Okay. And, of course, on Univision, can you give us any update in terms of negotiations for-- Is this likely to go to trial on April 29?

Well, the lawsuit filed by us against Univision, as you know, is proceeding in the federal court in Los Angeles. And it's now set for trial for next Tuesday, April 29, at 8:30 a.m. The court mandated two different mediation sessions in the past month. And Televisa and Univision did not reach an agreement to settle the lawsuit. Settlement talks have continued after the mediation sessions, but we cannot anticipate that any settlement will be reached prior to the start of the trial next Tuesday.

And how long do you think that trial will go on?

Well, the judge in the pretrial conference that was held last Thursday established that the trial will take three weeks.

Thank you.

Thank you. Our next question is coming from Miguel Garcia of Deutsche Bank.

On the broadcasting side, based on the good results in the first quarter, could you give us an update on the guidance for second quarter, just on the broadcasting side?

And, also, I wanted to ask you about the plans on Cablevision's telecom business. I remember you offered very aggressive plans initially, last year. And I wanted to know if you still have these same promotions or if your rates right now are more similar to what Telmex offers.

And, lastly, regarding cable operations in general, I wanted to know if the Cablemas acquisition was already approved and closed and if you expect to continue acquiring cable operators, or the fact that you have certain big segment-- I mean a big market share-- could stop you from acquiring more? Thank you.

Well, as you know, we provide annual guidance. And, basically, we're sticking to this guidance. For the full year, we estimate that both television broadcasting sales and operating segment income will grow approximately 4.5% in nominal terms, Miguel.

And, as to Cablevision, we closed the quarter with 16,000 telephony subscribers, which I think was a very good result, since we started towards the end of the year last year. Our prices are below Telmex's price package. We're offering two packages - a basic package, which includes the 100 local calls with a price of MXN 138, and, also, an unlimited package in terms of calls, which includes-- which is priced at MXN 278.

And regarding the acquisition of Cablemas?

The acquisition of Cablemas-- We're complying with everything that the antitrust commission established in the resolution where they approved the acquisition of Cablemas. So we're waiting for the final approval for the conversion of the debentures that we hold. I mean, we have complied with all these conditions imposed by the commission, and we expect to be able to convert these debentures very soon.

As to your last question that has to do with the consolidation of the cable industry in Mexico, we, of course, would love to continue consolidating the industry. I think there's a great opportunity to do so and to continue in doing so. So, if we find opportunities, we will take advantage of them and acquire more cable companies.

Okay. Thank you.

Thank you. Our next question is coming from [Davis Bell] of Morgan Stanley.

I just wanted to follow up on the-- I didn't fully understand the margin guidance on the TV broadcasting side for 2008.

I'm sorry?

Can you reiterate what the margin guidance is for--?

The margin guidance, basically, is to maintain the margins that we obtained last year on the television broadcasting side of the business. And this is 4.5% in nominal terms - growth of television broadcasting. If you compare it to last year, it's going to drop about a point because of the comparison between [nominal and nominal].

Okay. Thank you.

Thank you. Our next question is coming from Michael Kapinski of Nobel Financial.

I was wondering if you can give us an update on the scatter market prices for advertising in your broadcast segment. Are you seeing any lift in the ratings improvement in the first quarter carry over into the second? And then I just have a couple of other follow-up questions.

Actually, we're in line with what we were expecting in the spot market. As you know, the first quarter is normally not as strong. The mix was in the revenues 88.1% up front; 11.9% was the spot market. And what we're seeing is that, based on the new projects that we have that have a lot of new product integration opportunities, as well as new special events that are targeted at that very important demographics, and that's what we are concentrating on. That's where we see the growth of our scatter market. But we are seeing that market totally in line of what we were expecting, and, with these ratings that we're drawing, we are sticking with the guidance of the whole year that has a very good mix, as you know already, of spot market as well as up front.

And, in terms of the U.S. economy, obviously, slowing here, what are the expectations for the Mexican economy right now? What do you think in terms of the outlook going into the balance of the year how, since the U.S. economy has significantly slowed, what you think the Mexican economy will do for the balance of the year?

I think that the Mexican economy will definitely be affected by the slowdown of the U.S. economy. 90% of Mexico's exports are made to the U.S. as a result of NAFTA. However, as you have seen our results for the first quarter, we haven't felt that yet in Mexico. But, definitely, there will be an effect, in my opinion, going forward.

Okay. And, in terms of-- I know you just started offering the telephone on your cable systems. What is the penetration of the triple play on your cable systems at this point? What percentage of your customers are taking all three?

Well, we just started telephony in Mexico City, so that's only 16,000 subscribers that we have at the end of the first quarter. Penetration in the video business is about 25% to 27%. That includes Cablemas. That includes TVI in Monterrey and also Cablevision in Mexico City. So it goes from 25% to 27% in video. Of course, internet access is way below that. It's about 10%. And telephony just started, so it's nothing.

Yes. So, in the other aspect-- I know this is a relatively small portion of your business, as well. Do you have any updates on your pacings of your bingo parlor openings? I know it's been a little bit slower, and you've been tweaking a little bit of your strategy there. What is your thought going forward on that?

We believe that it's going to be a great business going forward. It's going to be a great generator of cash for the Company. We currently have 16 bingo parlors. So we will open another 8 in this year. We sold MXN 270 million this quarter, both in bingos and lotteries, which I think is pretty good for a business that is in its infancy. So we think that it's going to be a great business. It has taken longer than we expected, especially, in what has to do with the lottery business. But we continue to be bullish on these businesses.

Great. Thank you for taking the questions.

Thank you. Our next question is coming from [Pablo Riveral] of Credit Suisse.

I just had a question on Bestel. What contribution in terms of sales do you expect from Bestel for the remainder of the year? Is there any seasonality in this business? And how much growth potential do you see in it going forward?

Well, Bestel, as you know, was acquired through a subsidiary of Cablevision. It's the second-largest fiber optics network in our country, after Telmex's. We think that it's going to be a great business, especially because of the synergies it has with our cable subsidiaries and our cable interests in other companies in Mexico. So we expect Bestel to sell around MXN 2.2 billion this year, and we expect EBITDA to be around MXN 500 million.

Okay. And is there any seasonality associated with it?

Not really.

All right. Thanks.

Thank you. Our next question is coming from Ben Mogil of Thomas Weisel Partners.

So, a couple of questions. First of all, in terms of the impact of Easter on the revenue, can you give us a sense of what the impact was? And, then, the second question would be-- You mentioned in the press release about March 2007 having a 3% cable pricing increase. What was the pricing increase that you put through for 2008? Thanks.

As to Easter, I think-- Well, it took away-- The two weeks of Easter and also a holiday that was added to that took away about 15% of the business days of the quarter. So, of course, it had an effect. However, we thought that it was going to be a much larger effect than it was. The sales force did a great job in selling and turning that around. As you know, we had expected a decline of 5%, so we're very happy with the results of the sales of television broadcasting.

As to your question-- Your second question had to do with Cablevision?

Yes. The second question was sort of, you know, what was the--? You mentioned a March 2007 pricing increase of 3% on the cable side. Did you put through a March price increase in 2008, and what was that price increase around?

On average, we have increased 2%.

Okay. Great. In terms of just-- last sort of question in terms of just general visibility. Can you give us a sense--? Are you seeing advertisers sort of increasingly hold back and do things on more of a shorter-term basis, or are you still seeing the normal timelines that you've historically seen holding up in terms of advertiser visibility?

We haven't seen that yet. As I mentioned, if Mexico exports 90% of its products to the United States and the United States has a slowdown, of course, it should have an impact on the Mexican economy. However, as you may know, the Mexican government has established and is operating counter-cyclical measures. So we haven't seen a slowdown in our business, especially on television broadcasting.

Okay. Great. Thank you very much, guys.

Thank you. Our next question is coming from Fernando Ramos of GBM.

Hi. This is [Jimena Sanchez] from GBM. I was wondering if you could tell me how many of your net additions came from Central America in Sky.

Yes. We closed the quarter in Central America with 55,000, and the net additions were 20,000.

Thank you.

Thank you. Our next question is coming from David Joyce of Miller Tabak & Company.

Thank you. Could you provide some more granularity on the capital expenditures, particularly the TV broadcasting and other segments? What sort of things led to that being above MXN 33 million? Thanks.

I think that the difference as to the guidance that we had provided and the budget was that we bought a lot in Mexico City, and this is in connection with the productions of television programs. This was an investment of MXN 22 million, and this will become a new production facility here in Mexico City. So that is the main difference in the quarter.

Okay. And then, secondly, it looks like La Sexta is working better financially. Is that a function of the brand getting better known in Spain, or is it more of a function of a stronger economy there?

I think it's a combination of both. I think the results have been very good. La Sexta achieved an average audience share of 4% in '07, and it reached an average audience share of 5.1% in the month of December. And, now, it has grown to 7% in the last week. So that-- Of course, this growth from 5.1% to 7% was because of special events, so it's very difficult to sustain. However, the target, as you know, is to maintain that 7% audience share by '09 or to achieve that 7% in '09. So, La Sexta is in line with sales and EBITDA budgets and with the business plan that we approved since we made the investment. So we're very happy with the results of La Sexta.

Thank you very much.

Thank you. This does conclude our Q&A session. I would now like to turn the floor back to management for any closing remarks.

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

Thank you. This does conclude today's Grupo Televisa's First Quarter 2008 Conference Call. You may now disconnect, and have a wonderful day.