Grupo Televisa SAB (TV) 2009 Q1 法說會逐字稿

Good morning, everyone. And welcome to Grupo Televisa's First Quarter 2009 Conference Call. Before we begin, I would like to draw your attention to page seven 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, Elsa. Good morning. We're pleased that you have joined us for this discussion of Grupo Televisa's first quarter 2009 results. With me today are Jose Baston, President of Television and Content; and Salvi Folch, our Chief Financial Officer.

I'll take you through the financial results for the quarter. Then Jose will discuss the operating results of our television segment. After that, we'll be happy to take your questions.

The first quarter of 2009 set a new record in terms of net sales and operating segment income for the first quarter. Our consolidated net sales increased 19.1% to MXN11.4 billion. And our operating segment income grew by 17.7% to MXN4.1 billion. The growth in sales was evident in every single one of our core businesses, from television broadcasting to Sky to cable and Telecom. In addition, three of our core businesses -- television broadcasting, pay television networks, and programming exports -- experienced an increasing margin.

Our television broadcasting business experienced an increase in revenues of 4.1%, reaching MXN4 billion. This is explained by the ongoing improvement in ratings and by a favorable comparison with the same period of last year, resulting from the fact that this year's Easter holiday sales in the second quarter.

Operating segment income increased to MXN1.6 billion. And the margin was 39.2%, 20 basis points higher than the margin reported the same period last year. We have been able to withstand the negative impact of the depreciation of the peso on our business as a result in part of the cost-cutting plan that Televisa put into place starting the fourth quarter of 2008. Among other measures, this one included the freeze on any new hires and no salary increases for middle and top management for 2009.

Our pay television networks business experienced very favorable growth. Sales rose 31.2% to MXN608 million. And operating segment income increased 40.1% to MXN397 million. This growth is explained by higher sales to pay television platforms in Mexico and Latin America and by a favorable translation effect on foreign currency denominated sales.

Similarly, our programming export business benefited by the favorable translation effect on foreign currency denominated sales with revenues reaching MXN686 million, a growth if 18.7%, and operating segment income reaching MXN341 million, a margin of 49.6%.

The positive impact of the depreciation of the peso in our programming export business was partially offset by an 18.9% decrease in royalties from Univision, which amounted to 29.9 million for the quarter.

Net sales in the publishing business grew by 5.4% during the quarter to MXN767 million. And operating segment income decreased to MXN22.5 million. The impact on margins is primarily explained by the anticipated decline in advertising revenues and to a larger extent circulation revenues.

Since the beginning of the year, management has undertaken an aggressive rationalization plan to minimize the impact on margins from the slowdown in the global publishing industry.

Sky continues to deliver strong results during the quarter. Net sales grew by 10.8% to MXN2.4 billion. The successful expansion of Sky operations in Central America added 14,000 subscribers from this region. Sky's total subscriber base reached 1.8 million by the end of the quarter.

Operating segment income grew by 2.8% to MXN1.1 billion, equivalent to a margin of 46%. The decline in margins is attributable primarily to the negative translation effect on foreign currency denominated programming expenses. However, the impact on the margins is less than what we had anticipated thanks to successful negotiations with our content providers.

Net sales in our cable and Telecom business grew by 110% during the quarter to MXN2.2 billion. Approximately two-thirds of the growth is explained by the consolidation of Cablemas starting on June of 2008. Excluding Cablemas, net sales in our cable and telecom business grew by 25%. During the first quarter, the sales grew 33% to MXN529 million. And Cablevision added 20% more revenue generating units primarily as a result of its successful triple play offering. In the aggregate, the number of Cablevision and Cablemas RGUs reached nearly MXN2.1 million.

I'm also proud to share with you that Jean Paul Broc, CEO of Cablevision, was honored with the 2009 telecommunications award, which he received from the hands of President Felipe Calderon during the reunion of the cable industry. This award honors those who excel for their vision and strategy in support of the industry's growth and development.

Moving onto our gaming business, we closed the first quarter with 23 bingo parlors and over 7,000 electronic vending machines in operation. We're happy to report that for the first time, we reached operating segment income breakeven in our gaming business during the quarter.

Televisa's Board of Directors will submit to the shareholders' meeting later today a proposal to pay an extraordinary dividend of MXN1.4 per PPO. This is in addition to our ordinary dividend of MXN0.35 per PPO for a total of MXN1.75 per PPO. The total amount of the dividend will be approximately MXN5.2 billion. This is the equivalent to a yield of approximately 4% based on yesterday's closing price. If approved by our shareholders, this dividend will be paid on May 29th.

We continue to maintain a very solid balance sheet with a consolidated negative net debt of MXN5.4 billion and a total cash position, including temporary investments, of over MXN43 billion, two-thirds of which is denominated in foreign currency.

Finally, at this moment, the dynamics of the spread of the current influenza epidemic in Mexico and its impact on the economy remains unclear. We may experience a slowdown in our gaming business due to the temporary closure of our bingo parlors in certain locations. And we may also experience a decreased magazine circulation among other effects.

However, we do not expect at this point that any of our core businesses will be directly impacted. Our exposure to advertising revenue from the industries most affected, such as retail, travel, tourism, and entertainment outside homes is limited. This even, however, will likely deepen the economic slowdown for Mexico in 2009. It is too early to estimate the magnitude of the damage.

The uncertain economic environment will continue to present challenges to our business. As these results illustrate, however, the resilience of our client base, the diversification of our business, our careful foreign exchange risk management, and our superior balance sheet will provide us with unique opportunities for continued organic growth, improvement in margins, and growth through consolidation. Thanks for your attention. And now I'll turn the call over to Jose.

Thank you, Alfonso. And good morning, everyone. And thank you for joining us. We are very pleased with our results for the first quarter of 2009. Last year was a very good year. And we have maintained during the first quarter the excellent performance that we reported during 2008.

During the first quarter of this year, we aired 21 of the top 25 programs in Mexico. In our core business segment, television broadcasting, we enjoyed another quarter of extraordinary audience shares. Average sign-on to sign-off audience share was 72%. This is the fifth quarter in a row that we have achieved average sign-on to sign-off audience shares of more than 72%. We are very pleased with our results and continue to work hard in maintaining our absolute leading position in the industry.

Our flagship Channel 2 continues to drive our performance with excellent audience results in primetime in particular. Average primetime audience share for Channel 2 was 33.9% during the quarter.

We launched our new 4.00 p.m. available in this quarter called (spoken in Spanish), which has enjoyed audience share levels not seen since 2002. Since it first aired on the entire quarter, this novella maintained an average audience share of 43.8%, which is an outstanding result for this time slot. Additionally, it is a great business opportunity for exploiting the content in our different platforms, aligning naturally with our 360-degree strategy.

The 9.00 p.m. time slot on Channel 2 once again delivered excellent ratings. Our 9.00 p.m. novella Manana es Para Siempre is the most successful novella currently on broadcast television. It achieved an average audience share of 44.1% since the beginning.

We continue successfully with our programming strategy for Channel 2 from sign-on to sign-off that consists in producing our programming shows related to Mexican customs and habits, which cater to the entertainment needs. In doing so, we believe our ratings are set by the needs and demands of all of our advertisers.

Our programming on Channel 5 continues to deliver excellent results. Our diversified programming on this channel has enabled us to maintain the high-quality audiences that our customers want and complement significantly the targets reached by our other networks.

In our pay TV networks business, we continue to expand our portfolio of channels as well as the quality of our content. Today, of the top 20 channels on cable platforms in Mexico, eight are channels produced and distributed by Televisa networks. As a result, during the quarter, we added an additional 1 million subscribers, reaching a total of 22 million worldwide. And we are working to increase not only the number of subscribers, but also the number of [challenged] pay subscribers.

As of March 31st, 2009, we reached MXN103 million revenue generated units, an increase of MXN8.2 million in only three months. In line with our ongoing objective to provide additional choices for our customers, we are producing new content, giving them access to new and innovative opportunities to commercialize their brands. And we continue to provide our customers with more opportunities for product integration. For example, this year, we are preparing to launch our new channel 100% sports related content.

Regarding our programming export segment, we will continue to seek out alliances with high-potential countries. For example, the second season of the Chinese version of La Fea mas Bella just finished airing with extraordinary results, reaching the second highest ratings nationally. Because of its success, we are currently producing the third season that will be broadcasted by Hunan TV as well, which reaches more than 350 million viewers.

Additionally, last March, we started the production of the Chinese version of our original story (inaudible). This show will be broadcast by (inaudible), which reaches a potential audience of 30 million viewers.

Thank you so much for your attention. And now we are ready to take your questions.

(Operator Instructions) Your first question comes from Gordon Lee.

Hi. Good morning. Just a couple of questions -- the first question's actually for you, Alfonso. And I'm sure you've seen it. There's been some speculation or some commentary in the press in Mexico about the possibility of you leaving Televisa to join another big corporation in Mexico. I was just wondering if you'd be able to comment on that, whether there's any truth to that, and also just curious if there's anything contractually that would make it difficult for you to leave Televisa.

The second question is on the broadcasting side. The margin was actually remarkably strong considering the weakness of the peso year on year. I was wondering whether there was some sort of maybe delayed effect whereby the full weakness of the peso was not reflected fully this quarter and there could be some sort of a delay. Or does that cost base already reflect the weakness in the peso that we saw in the first quarter?

Well, I'm glad that you asked the first question, Gordon. I have no contract of the nature that you would have in the US with a fixed term or anything of that sort. However, I mean, as to the rumor that was spread in the Mexican press and outside I guess, I've been a board member of Grupo Modelo for now about three years. And Grupo Modelo's a great global company and that is lucky also to have a very talented chairman. And if you come to think about it, I think that the Corono beer is one of Mexico's global brands that you can find everywhere.

So the Board of Modelo decided to form a finance and strategic planning committee. And they asked me to become its chairman. I thought about it. And considering that it's a world-class company and that I like them a lot -- I feel proud of that company -- I accepted. However, that is not going to affect in any way my job here at Televisa.

Now as to the broadcasting question, I mean, the margins are very strong, as I mentioned. It has to do with very strong sales and the cost-cutting effort that we put in place towards the end of last year. And also, yes, there is a small delayed effect.

Perfect. That's great. And thanks so much for the candor on the first question. Thank you.

Your next question comes from Jessica Reif Cohen.

Thank you. From Bank of America-Merrill Lynch. I have two questions. One, on Sky Mexico, it seems like your margins are peaking. Yet you did say you're negotiating with content providers. I was wondering if you could tell us what kind of savings you would expect from those negotiations.

And then, secondly, as you look out over the next few years, you have an amazing balance sheet. And I was just wondering if you could discuss how you think your asset mix would change. How would you want it to change, again, given the strength of your balance sheet, the weakness in many other companies, and what seems to be a lot of opportunities in various markets?

Hi, Jessica. As to your first question, basically what we are negotiating with the content providers is an exchange rate. In some cases, we're negotiating a flat MXN12 per dollar exchange rate. In other circumstances, we're including a floor and then a variable percentage where we share any decline in the peso in the future with those content providers. So mostly, it's exchange rate related. And those contracts are denominated in dollars.

As to your second question, as you have seen in the recent years, we have diversified our businesses. And now cable and Telecom together with Sky represents about 40% of our sales and EBITDA generation. So we'll continue through that path. I think it's excellent to have Televisa as the largest producer and broadcaster of content in Spanish worldwide and also to have a very important presence in the Telecom market in Mexico and in Central America.

And how about geographic diversification?

Of course, we would like to expand in the US. It's after Mexico the most important Hispanic market. And we couldn't do the -- we're very lucky not to do the Univision investment. We were lucky twice because, first, we lost the auction. And then we were lucky again when we were about to do a deal with the current owners of Univision, which we couldn't close. So having been lucky twice and not having bought any Univision equity valuing that company at 14 billion, now we have to find other alternatives in the United States. Of course, that's a priority to expand our businesses in that -- in your country.

Thank you.

Your next question comes from Gustavo Oliveira.

I have two questions. The first one is going back to the operating margins for each one of the segments, especially the broadcasting, the cable, and the Sky. You mentioned that there is a small delay on the forex effect. What could be then more of a normalized EBITDA margin? And maybe if you could provide us some guidance for the year if that's possible in each one of those segments. The second question is if you could give us an update on the internet losses that you have going on in the US.

Yes. As to your first question, Gustavo, on the television broadcasting side of the business so you can have a perfect measurement of the magnitude, we have a deficit of $200 million in US dollars. So that's precisely what it is. And of course, as the exchange rate varies up or down, the deficit that we have is $200 million.

As to the internet trial, it was scheduled to go to trial in the Federal District Court in Los Angeles on June 9th. We were going to go to trial before. However, the judge requested postponement of the trial because, unfortunately, he got sick.

Okay. And just still on the first question, I understand the $200 million is on a consolidated basis. But you're renegotiating contracts, especially for programming in Sky and the cable business. Aren't those renegotiations done already? And have you locked in an average peso exchange rate? And what was that average?

Yes, Gustavo, we have closed about 60% of the negotiations. As I mentioned before, in some cases, we have fixed an exchange rate. In other instances, it's fixed a floor. And then we share any decline in the peso on top of that floor. So about 60% of those agreements with content providers have been renegotiated by Sky, Cablemas, and Cablevision.

Okay. Any average that you can provide at this point or no?

No, for competitive reasons and being this confidential, I would not like to share that.

Okay. Fair enough.

I mean, they're good deals for our company, of course.

Okay. Fair enough. Thank you.

Your next question comes from Andrew Campbell.

Yes, good morning. I have two questions actually. My first question is on the ratings increase. And can you remind me if all of your advertisers are now paying on a rating point basis because I recall that several years ago you were moving toward more of a rating base pricing system.

And then my second question is on Univision and the revenues from Univision. I noticed that your export revenues were still quite strong in the quarter. But you mentioned in the past there was a pretty sharp decline in the revenues coming from Univision. And I wondered if that reflects actually the decline in the business at Univision or if there was something else to explain that decline in royalties.

Okay. Based on the client, an average of about 50% of our clients are buying now on a cost per rating. So that would be a fair answer, 50%.

And, Andy, as to your second question, as I shared with you during our last conference call, we had anticipated a lower decline in Univision royalties. We had anticipated basically that the slowdown in advertising in the US would have an impact on Univision. And it's revenues. But we expect that the retransmission fees that they're receiving to compensation for most of the decline in advertising revenues. The drop of 19% came as a surprise for us.

Now considering these results, our expectation for Univision royalties is now a drop of between 15% to 20% for 2009. Of course, this business segment, since all our exports are done in US dollars, the result you see there is mostly the decline in the peso when compared to the US dollar. Exports to other parts of the world are basically flat in dollar terms.

Okay. That's great. Thank you.

(Operator Instructions) Your next question comes from [Rodrigo Villaheuna].

Hi, good morning. Just one quick question -- could you please share with us your view on the negative impact that we could expect from swine flu on your gaming business? Thank you.

Yes, as I mentioned before, I think it's too early to say. It's too early to be -- I would not be able to predict it. Of course, it's going to affect several industries, such as retail, travel, tourism, and entertainment outside homes. But we still don't know -- the Mexican government yesterday night declared a national holiday until May the 5th, where most businesses are going to be closed nationally. All the schools in Mexico, as you know, are closed. So it's very difficult to predict at this point what effect it's going to be and the damage -- the magnitude of the effect that this is going to have on the economy.

Okay. Thank you. And just one thing regarding your dividend yield -- could you please repeat the dividend yield if the extraordinary dividend is approved?

Yes, the dividend yield is approximately 4% based on yesterday's closing price.

Okay. Thank you very much.

Thank you.

Your final question comes from [Paul Stein].

Hi, morning. Just on the broadcast market, maybe you could comment a little bit about what the ad placement's been like against the upfronts from this year so far, where you're sort of pacing relative to prior years and how much carryover there is there and maybe also in the spot market, the view from advertisers at the moment.

Okay. In the first quarter, it was a mix of about 88% upfront and 12% spot market.

And that would be relative to prior years sort of normal or not?

It's pretty close. In 2008, it was 85.5% and 14.5%. So it's pretty close.

Okay. The last one for me would just be on triple play uptake. Maybe you could give us a sense of where you think you'd be at the end of either this year or next year in terms of penetrating the base, in terms of bringing up broadband and telephony. Thank you.

Yes, we expect to grow double digit in both -- I mean, in the triple play market and the three services basically.

Thank you.

There are no further questions.

Well, thank you very much for participating in this call. And please call us if you have any additional questions.

Thank you. This concludes today's conference call. You may now disconnect.