Grupo Televisa SAB (TV) 2009 Q4 法說會逐字稿

Good morning everyone and welcome to Grupo Televisa's fourth quarter and full year 2009 conference call. Before we begin, I would like to draw your attention to page 9 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. Thank you for joining us for this discussion of Grupo Televisa's fourth quarter and full year 2009 results. With me today are Jose Baston, President of Television and Content and Salvi Folch, our Chief Financial Officer.

First I'll highlight our fourth quarter and full year consolidated financial results and take you through our full year segment results. Then we'll review our outlook for 2010 and Pepe will discuss the operating results of our television broadcasting segment. After that, we'll be happy to take your questions.

During the fourth quarter, consolidated sales increased 4.8% to MXN15.2 billion. And for the full year consolidated sales increased 9.1% to MXN52.4 billion. Except for publishing, an industry which, as you well know, is experiencing challenges on a global basis, all of our businesses grew during 2009.

This is a remarkable achievement, given that GDP in Mexico fell by 6.5% during the same period. For the full year, operating segments income grew by 4.2% to MXN20.7 billion. This was achieved in spite of an average depreciation of the peso of 21% during the year, which had a negative impact in the cost structure of many of our businesses.

During the fourth quarter and also for the full year, our television broadcasting business sales grew by 0.5% to MXN6.7 billion and MXN21.6 billion, respectively, marginally exceeding our full year guidance of flat nominal growth. We are proud of this accomplishment in light of the economic slowdown and the particular challenges that it presented to our advertising clients.

Our aggressive cost control plan has paid off. Full year operating segment income in our broadcasting business reached MXN10.3 billion, resulting in a margin of 47.9%. The drop in the margin of 100 basis points, which is explained primarily by the depreciation of the peso, was smaller than our initial guidance of a drop in the margin for this business of 200 to 300 basis points.

Our pay TV networks business continued to expand its reach globally. As of December 31, 2009, it reached 23 million subscribers through our cable and DTH affiliates worldwide, a growth of approximately 2 million subscribers during the year. As a result, during the fourth quarter, sales increased by 6.1% to MXN742 million and by 23.7% for the full year to MXN2.7 billion.

Operating segment income increased by 21% during the year to MXN1.7 billion and the margin was of 60.7%. This is a very profitable business where we are investing in its continued growth with a launch of new networks.

The low margin in the second half of 2009 is explained by the recent launch of our dedicated sports pay television channel Televisa Deportes Network or TDN. Beginning in the fourth quarter of 2009, and for three more consecutive quarters, this business will also amortize the cost associated with exclusive transmission in TDN of 10 matches of the 2010 World Cup.

Sales in our programming exports business increased by 4% in the fourth quarter. For the full year, sales in this business rose by 16.8% to MXN2.8 billion. Much of the growth in this business resulted from the peso depreciation, given that the royalties from Univision decreased by $3.5 million to MXN146.5 million in 2008 to MXN143 million in 2009.

This growth in sales also originated, although to a lesser extent, from an increase in sales in Latin America and Europe. Operating segment income in this business increased by 33.5% to MXN1.4 billion during the year, and we achieved a record high margin of 50.5%.

Moving on to our publishing business, sales decreased 17% to MXN945 million in the fourth quarter or 9.3% to MXN3.4 billion for the full year. Our publishing business continues to face a number of challenges that we addressed head on. In the United States we're taking the necessary steps to improve our distribution infrastructure and in Venezuela we faced a devaluation of the local currency.

As a result of the impact that the conditions of the industry has had on collections, in particular in the United States and Venezuela, during the fourth quarter, we created reserves for doubtful accounts of approximately MXN130 million. Despite these measures, many of which included one-time restructuring charges, our publishing business was profitable in 2009, and operating segment margin for the full year was 5.7%.

We have very important and well established brands in this business with a presence in 20 countries and we're exploring alternatives to best exploit the value of these brands in a profitable and sustainable manner.

Moving on to Sky. In the case of Sky, we're very happy to report that during the fourth quarter, we added over 140,000 subscribers, bringing Sky's total subscriber base to almost 2 million. As a result, fourth quarter revenue grew 9.3% to MXN2.6 billion and full year revenue grew by 9.2% to MXN10 billion.

Many of the new subscribers during the fourth quarter resulted from the launch of its lower pay television offerings. These have allowed Sky to reach a segment of the market that it was not targeting before.

While Sky takes advantage of its new low cost offerings, it will continue to seek growth in high-ARPU subscribers. For example, of the 64 matches of the soccer World Cup in 2010, 24 will be transmitted exclusively through Sky as part of its premium offerings. Sky will also make these games available over the internet, but access will be restricted to Sky subscribers.

In addition, after the successful launch of its new satellite two weeks ago, Sky will now offer high def channels, which we believe will be a great differentiator in this market. Starting in April, Sky will be offering its new high definition services, which will include all the games of the soccer World Cup.

Operating segment income grew by 1.4% to MXN4.5 million during the year and the margin was 44.8%. It is worth mentioning that excluding the amortization of the costs associated with the World Cup, which impacted the second half of 2009, operating segment income for Sky would have grown by 6.4% for the full year. We expect to continue amortizing the costs of the World Cup for this business in the second and -- in the first and second quarter of 2010.

Our cable and telco platforms continue to deliver strong results during 2009. In the aggregate, RGUs or Revenue Generating Units for our three cable investments reached 2.8 million, of which 650,000 were broadband subscribers and 307,000 were telephony subscribers. Beginning October 1, 2009, we consolidated Cablevision Monterrey, also known as TVI, which reached 425,000 RGUs by the end of 2009, and represented incremental sales of MXN391 million.

Total revenues in our cable and telecom business, which includes Bestel, grew by 21.7% during the fourth quarter to MXN2.7 billion, and by 39.5% during the year to MXN9.2 billion.

2009 was a particularly difficult year for long distance revenue, an important component of the sales revenue base. Excluding Bestel and the consolidation of TVI, total revenue in this segment grew by 15.6% during the quarter. As a result of the success of our triple-play offerings and the consolidation of TVI, during the year operating segment income grew by 39.2% to MXN3 billion.

During 2009, we repurchased 13.3 million CPOs for an aggregate nominal amount of MXN705 million. In addition, we paid two cash dividends for an aggregate amount of MXN3.1 per CPO, equivalent to approximately MXN9.2 billion. I want to remind everyone that the second dividend payment of MXN1.35 per CPO, which totaled approximately MXN4 billion, was a payment of the expected 2010 dividend.

We concluded our upfront sale, negotiations and sales for 2010 with a growth of 5.5% over last year's upfront. In line with the growth in our upfront, we're setting our guidance for television broadcasting revenue in 2010 at 5%. Given the costs associated with the soccer World Cup, we expect to reach a margin of approximately 47% during 2010.

2009 was an extremely difficult year for Mexico and other countries and we're proud of our results. In spite of the worst economic contraction in 77 years, during 2009, we continued to deliver very strong results in most of our businesses and continued to make progress with our cable and telco strategy.

The upcoming spectrum and dark fiber options and the recently announced investment in Nextel Mexico will further advance our efforts. We believe we're uniquely positioned to benefit from the rebounding of Mexico's economy and we're excited about the prospects for this year.

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 pleased with our results for the fourth quarter and indeed for the entire year. Our results demonstrated continued strength of our content and our clear leadership of this industry.

For television broadcasting business, in the fourth quarter, we achieved another sign-on to sign-off audience share of 70.5%, and we are 75 of the top 100 programs. Our average sign-on to sign-off audience share for the year was 70.8%, and in 2009 we are 70 of the top 100 programs in the country.

00 p.m. to 10:30 p.m., continue to bring in solid ratings. For example, our 9:00 p.m. novella consistently generates ratings of around three times the audience of our competitor during the same time period.

Our 8 p.m. novella, which started in June, has ranked among the three top rated novellas for that timeslot since ratings are measured. This novella brought other audience share of 45.9% in the fourth quarter. And by the way, the novella is still on the air having even more ratings than last year.

In 2009, we continued to help our clients to extend their reach to their target audience more effectively by developing together branded programming. And this programming is developed jointly with the client; the cost for Televisa is significantly reduced, making these timeslots highly profitable for our networks.

We continue to successfully develop series and air them on Channel 5, our second most important network. These series reach high quality demographics that are very important for our clients. We have successfully aired these shows in different platforms. Initially we transmit them to our pay TV audience. So by the time we broadcast them over here, we have already amortized a certain amount of the cost.

Our pay TV networks business continues to deliver strong results and continually presents us with new opportunities. In the third quarter, as Alfonso said, we successfully launched in Mexico our much anticipated Televisa Deportes Network, our new all sports pay TV network.

TDN is a dedicated channel that offers round the clock sports programming that is compelling to our male audiences and our advertising clients. TDN rounds out an already strong portfolio of pay TV channels. Thus far, the reception to TDN has been very good.

We attribute TDN's initial success to the high quality of the content aired exclusively on the channel. This includes the Spanish and Mexican soccer and selected games of the World Cup. We have successfully launched TDN in Mexico and Latin America and we see great potential in these new offerings.

Additionally, during the fourth quarter, we launched the Portuguese version of our 100% novella channel, TL Novellas, a new channel in Portuguese for the markets of Brazil and Portugal. Televisa has a vast library of telenovellas dubbed to Portuguese, which makes this a very low risk venture.

The relevance of our content -- of our current channels and expansion of our portfolio drove RGU growth of 18% during 2009. We will seek to continue expanding our pay TV offering not only through Televisa's own network productions, but also through third party produced content in order to capture opportunities presented by the pay TV audience and our advertising clients.

Our programming exports business continued to focus on high potential markets that allow us to share in their advertising pie, and we are concentrating on strengthening the relationships we have developed and looking for new opportunities to build on them.

In 2009, we collaborated to produce our popular format in China and Brazil with very positive results. We remain committed to producing the best content and to maximizing its value by integrating and cross-promoting it throughout all of our business segments.

Thank you for your attention and now we are ready to take your questions.

Thank you. (Operator Instructions). And your first question comes from Paul Steep of Scotia Capital.

Great, thanks. Alfonso, maybe just first off, the -- when -- again, you had a lot to cover there, but maybe you could just clarify the comments again around the upfront. I don't know if you said the amount of spots you'd sold. I heard the increase, but I didn't hear -- you went a little quick there?

Yes, hi, Paul. Yes, we finished our upfront negotiations for 2010 and the growth was 5.5% over last year's upfront. So that's why we are basically saying that in 2010, television broadcasting revenues will grow 5%.

And what was the response? I guess, relative to prior years, obviously it's a recession, but did you put more inventory into the upfronts or have you actually held back a little more for the spot side of the market, hoping for an improvement later?

I think it was around the same as last year.

Okay. Last one --

And then there is -- there is still a lot of uncertainty in the economy, and what will happen to Mexico as a result of what will happen to the U.S. economy. So because of that uncertainty, the advertisers are very cautious.

Much more -- much less cautious than in 2009. We believe that this 5.5% increase was a great result. However, we want to be cautious, and that's why we are saying 5% in terms of guidance for 2010.

Okay, great. The last one from me would just be on cable, and it would relate to what the CapEx expectations would be in terms of building out the network and the various assets you have. Maybe you could give us a little recap. You've spent a lot last year and the year before. And obviously you can leverage it in Nextel, but what should we look for in 2010 in terms of pace of spend there? Thank you.

Yes, Paul. Well, our CapEx in 2010 for cable and telco will be $350 million, out of which $180 will be for Cablevision in Mexico City, $90 for Cablemas, $60 million for TVI, which is the Cablevision in Monterrey, and $20 million will be for Bestel, the fiber optics network.

Okay, great. Thank you.

Thanks.

Your next question comes from Rodrigo Villanueva of Merrill Lynch.

Hi, good morning, gentlemen. I was wondering if you could give us more visibility on the other businesses and the publishing division for 2010. That will be my first question.

Yes, Rodrigo, well, publishing as you know is an industry that as a whole is being challenged. In terms of our publishing business, which is the largest publisher of magazines in Spanish in the world, we're analyzing this business and the profitability of each of our titles.

Basically, we publish 400 titles. And so we are analyzing each of those titles and each of the markets where we operate. Basically, we have operations in 20 countries. So this exercise will help us understand the potential of the business going forward, and we'll be able to determine how many titles we want to keep and how many titles we are going to basically discontinue.

We have very strong brands. So we are doing a lot of things aside from the publishing, strictly the traditional publishing business in respect to our brands. So what I can tell you is that we are finalizing our new strategy plan, our new strategic plan for this business, and we'll restructure and redefine the whole publishing company in the second quarter of this year.

As to the other companies, cable and telco, we'll for sure have a spectacular growth in 2010. Sky will continue its growth. And I think it will be also a very good year for Sky because of the World Cup and because of the packages that we have launched. So we are going to be -- we are going to see very good results in cable and telco and also in Sky. I think we are going to be -- to see much better results in the publishing business. So those are our main other businesses.

Okay, thank you, Alfonso. Regarding the other businesses division you have that are gaming, the soccer team, music, radio, et cetera, can we expect that division to keep on having negative EBITDA in 2010?

Well, I think we'll improve the situation of the bingo parlors of the gaming company, and we expect to be EBITDA positive on the bingo parlor side of the business this year. This -- in 2009, we wrote down several agreements that have to do with ***soccer player and that affected that business segment. So there was an impairment there also, which was a non-cash situation, which we don't expect to have in 2010.

So we do believe that it's going to be -- I think that it's going to improve; however, we still in total feel that it's going to be a negative contribution to EBITDA in 2010.

Okay, thank you very much. And finally, if I may, for 2010, what would be a reasonable other expenses to sales ratio to expect? This year during the fourth quarter, I think, it increased substantially to around $1.4 billion plus. So I was wondering if we could expect something similar for 2010. Thank you.

Yes, no, you won't see that in 2010. Most of what happened in the account of other expenses where non-cash impairment adjustments in some of our businesses including, as I mentioned before, some titles in our publishing segment and especially, we had an impairment in our broadcast station, which operates in self-advertising in San Diego, California. That -- in 2009, that company had a loss of 50% of its advertising sales. So we had an impairment charge, which was a non-cash adjustment. So all those things I don't think we'll see in 2010.

Okay, thank you very much. Very clear.

Your next question comes from Tomas Lajous of UBS.

Good morning, gentlemen, thank you for the call. I have a question for Alfonso and one for Pepe as well. So Alfonso, can you talk a little bit about what we should expect from your balance sheet? I mean, you've been essentially zero net debt for a bit. Now you have the Nextel deal. Once you pay that cash out, how would you -- how are you planning on managing the balance sheet? Are you going to try to accumulate cash back to being zero net debt or where are things going?

And then for Pepe, the question is really how is the series product doing in Mexico? What do you expect out of this product for 2010? And more generally, what are you excited about in programming for broadcast this year and in exports?

Yes, thank you, Tomas. Well, we -- as it has been a tradition for last years with Televisa though we've been having a very strong balance sheet, we are going to make the Nextel investments with cash on hand. And that we believe is going to be a great investment.

And it's the piece that was missing of the whole telco strategy. But that is not going to affect us a lot because of our cash position. So we are planning to have still a very strong balance sheet. And it doesn't mean that necessarily that will have negative net debt. But we'll continue to have a very strong balance sheet.

In terms of leverage ratio, I would say that we don't have a specific target for leverage ratio. As you know, and I have said before, we have been very conservative with our balance sheet and cash management. And we'll continue to place a lot of importance on maintaining this very strong balance sheet.

As of the series, we are still -- as we have been telling you guys -- in the learning process, although we see the series as a very, very good target product, we are going to still develop them. We see the series as a product that can be in the near future -- now that we have a library, and of course, it's going to grow this year -- a product that can become a nice new channel for pay televisions since we have all rights for basically all the world of this series.

So we definitely think that series is a product that we have to still develop. This year we are going to be launching two series that have great targets that will be aired. We already started airing two of them in Channel 2 with great results. But like I said, these kind of products have a lot of opportunities for rerun in different platforms. And of course, this is a great product to also do some kind of moves into the digital era, of the new media, for example.

In the programming for 2010, we have great tendencies since the beginning of the year in Channel 2. The audience share this year has started already with positive results and we think that 2010 is going to be a great year in our results for programming, not just in Mexico but also internationally. So we see with very good eyes the prospects for 2010 in our contents.

Great, very clear, thank you very much gentlemen.

Do you have any additional questions? Hello? Hello?

Your next question comes from Michel Morin of Barclays Capital.

Good morning. Thanks for taking the question. I just wanted to talk about the broadcasting business in particular. Your upfront of 5.5% certainly looks like a very good result. I was just wondering if you could compare that a little bit to what your competitor has achieved. It looks like they grew that 16% off of a much lower base. So I was just wondering how you compare yourselves against them, why there would be that big of a difference.

And then also I notice in the audience share that December was actually the lowest month of the year. So I was just wondering if you could comment a little bit on that. And I was also surprised, did I understand correctly that the -- your margin target for the broadcasting segment would be approximately 47% for the year? And if so, why would it be down year-on-year given the incremental revenue from the World Cup? Thank you.

Yes, well, as to your first question that has to do with upfront. Of course, our competitor has a lower base as you were mentioning. And also for them it's about -- I mean, upfront is about 40% of their annual sales. For us, our upfront is about 80% to 85% of our total sales during the year.

And as to your final question, yes, we are forecasting 47% in terms of margin with television broadcasting. And this is because of the costs associated with the production and transmission of the World Cup. We will have extra revenues, of course, in respect to the World Cup. But considering the -- considering that all those costs are either in dollars or in euros, it will affect our margins.

And actually December was not the worst month of the year. It was a month that we had 70.6% market share. Although December is always complicated because after the 18th approximately the [hopes] go down and definitely people stop using the television like they normally do during the year. So that definitely hurts when you have such a high percent of the audience. So what I -- I mean, it was nothing that we were not expecting.

Okay. Yes, no, I was just looking at the weekday prime time number audience share of 70.5%. I mean, it's not -- it's close to the range, but it just seems like it was a little bit light.

So -- but -- and then if I may, just one quick follow-up also on Sky and -- can you quantify what kind of impact you might have near term in terms of profitability from the recent satellite launch? And also how should we think about margins as you grow at the lower end of the segment? Is it fair to assume that that will put some pressure on margin over time somewhat? Thank you.

Yes, well, as a result of the launch of the satellite, but most importantly as a result of the launch of our lower end packages, programming packages, we think that EBITDA margins will decline over time, but we believe that a sustainable margin will be in the low 40s.

Right, thank you very much.

Thanks.

We have reached the allotted time for questions. Are there any closing remarks?

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

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