Grupo Televisa SAB (TV) 2010 Q2 法說會逐字稿

Good morning everyone and welcome to Grupo Televisa's second quarter 2010 earnings conference call. Before we begin, I would like to draw your attention to 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 Fiona. Good morning. We're pleased to have you join us for this discussion of Grupo Televisa's second quarter 2010 results. With me today is Jose Baston, President of our Television and Content.

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

During the second quarter, our consolidated revenue increased 14%, to MXN14.4 billion and our operating segment income grew 9.1% to MXN5.9 billion.

In our Television Broadcasting business, revenue was MXN5.8 billion, equivalent to an increase of 9.8% from last year. Although this result is well above our full-year guidance of 5% growth for the segment, it is mainly explained by the transmission of the soccer World Cup and the resulting reallocation of budget from other quarters to the second quarter when most of the matches took place. Our year to end growth is 7%.

Accordingly, our full year guidance the increased growth for the second half of the year is 3.4%, which is based on and is still in line with our expectations for the second half of the year.

Operating segment income was MXN2.9 billion and the margin was 49.2%. Our guidance for the full year is a drop in margin of 100 basis points. The drop in margin by 165 basis points during the second quarter is mostly explained by the transmission of the World Cup.

Total revenue in our Pay Television Networks segment grew by 11.2% during the quarter. This was achieved in spite of the appreciation of the Mexican peso against the US dollar during the second quarter of 2010 by 5.6%, when compared to the second quarter of 2009. This is relevant given the fact that subscription revenues in this segment are denominated in foreign currency.

Television Networks have been benefiting from both the growth in overall number of Pay Television subscribers in the country, and from the success of its recently launched channels. During the quarter, Television Networks was able to grow the number of subscribers by 6.8% to 23.9 million.

Operating segment income reached MXN365 million and the margin was 47%. The lower margin in this business unit is explained by the costs associated with the launch of Foro TV, our news network, and TDN, our sports network. In addition to the regular operating expenses of TDN during the second quarter, TDN continued to amortize the cost of 10 exclusive games for the soccer World Cup.

Televisa's ability to extend its production expertise on broadcast television to pay television is evident in the success of TDN. It is now the highest rated sports network in Mexico City, performing better than the long established and well recognized brand in this genre. Its success has also resulted in strong advertising revenue.

Total revenue in our Programming Exports business was marginally lower by 0.8% from last year, reaching MXN633 million. The slight drop in revenues resulted from an appreciation of the Mexican peso and a resulting unfavorable translation effect of this business.

Univision has not yet reported to us the results for the month of June. Our estimate for the quarter is that Univision royalties reached $37 million, a growth of 2.7% from last year, and exports to the rest of the world increased by 6.5%.

Operating segment income reached MXN294 million and the margin was 46.4%.

Our Publishing business delivered strong results on a smaller revenue base. Total revenue reached MXN812 million, a drop of 4.4% from last year. The decline in revenues is primarily explained by the unfavorable translation impact and the appreciation of the Mexican peso on our foreign currency denominated revenues, and by an exchange rate -- our exchange controls in Venezuela.

Circulation revenues were impacted in Mexico primarily because we stopped publishing certain books, but advertising revenues in Mexico and abroad have been improving.

Operating segment income reached MXN132.8 million. The margin was 16.4% compared with a margin of 3.6% in the first quarter of 2009. The improvement in margin is already reflecting some of the progress in our restructuring effort.

Moving onto Sky; that Company experienced revenue growth of 15.9% to MXN2.8 billion and total subscriber additions reached another record high 251,000 closing the quarter with 2.4 million. In only three quarters, since the launch of its low-end offering, Sky has expanded its subscriber base by 35% adding over 630,000 new subscribers.

Operating segment income reached MXN1.3 billion and the margin was 45.4%. The drop in margin is explained by the expenses associated to the launch of Sky high def paid offering and amortization of 24 exclusive games of the World Cup.

You may recall that during the first quarter, Sky successfully announced its new satellite Intelsat 16, doubling its transmission capacity from 12 to 24 transponders. With Sky's recent investment in exclusive sports content and in infrastructure, it was the only pay television platform in Mexico to offer all 64 games of the World Cup on both standard and high def.

Going forward Sky will continue to differentiate itself as the leading provider of premium sports and entertainment content.

Our Cable and Telecom segment continued to deliver strong growth and operating results. Since the beginning of the year, it is Televisa's second largest business after Broadcasting and ahead of Sky.

During the second quarter, revenues grew by 32.9% reaching MXN2.9 billion. In the aggregate, the number of Cablevision, Cablemas and TVI revenue generating units, or RGUs, reached over 3.1 million, a growth of 164,000 net additions during the quarter. The number of video subscribers continues to grow, adding a combined total of 82,000 during the quarter.

An important driver of growth continues to be the conversion of video subscribers to double and triple-play subscribers. The number of new data and telephony subscribers during the quarter was 43,000 and 39,000 respectively. The percentage of our video subscribers with data and telephony services is still low at 39% and 23% respectively, far below comparable companies outside Mexico, so this will continue to be an important source of growth.

Our Cable and Telco operating segment income reached MXN960 billion and the margin was 33.1%. Excluding Bestel, which is our fiber optics network business, the margin was 38.3%. Margins have benefited from the growth in the number of services per subscriber, a trend we will continue to experience over the next month.

Our Other Business segment delivered strong growth of 14.1%, reaching MXN984 million and operating segment income reached MXN48.1 million. Gaming, radio and television, interactive media, which are classified under this business segment, performed well during the quarter.

Gaming continued its steady pace of growth. PlayCity, our bingo parlor business, continues to face some challenges. We are pushing back the amount of capital invested in the expansion of this business until we resolve these challenges and improve the profitability of our existing sites.

In terms of our Lottery business, we're the only private company in Mexico with a lottery license and are convinced there is demand for these games. We continue to exploit the most effective way of carrying on with this license. So far, we have had some success with sports-themed lottery games.

In Television Interactive Media, revenues grew by 28% primarily as a result of advertising revenue associated to the World Cup. The number of users of our online properties continues to increase.

In the last six months alone, since we started requesting visitors to register for our [BOD] portal, over 3.2 million users have signed up. Today in the aggregate, visitors to Televisa's online properties now [make] over 15 million videos per month.

Our online presence has allowed us to extend the reach of our Company. For example, an average of 100,000 visitors watched online each of the 231 episodes of our successful novelas, Hasta que el dinero nos separe, for about 20 minutes each. This is on top of the 26 rating points achieved on broadcast television.

Our online presence is also allowing us to expand our audience beyond Mexico. For example, we transmitted all matches of the World Cup online throughout Latin America, excluding Brazil and Argentina. During the first 44 matches, users accessed more than 22 million [videos]. In the inaugural game alone, we had over 480,000 online visitors watching the game, an average of 53 minutes. This is on top of the 22.3 rating points that this game delivered on broadcast television.

We have started capturing the value of this audience. For example, all commercial breaks in the World Cup matches were replaced and sold for online transmission.

Aside from an event such as the World Cup, the regular online audience is still small and advertising budgets are limited. However, we produce a content pack and have already created the tools and platforms necessary to capture this revenue base when it reaches a critical mass.

Our total CapEx expenditure for the quarter was $219 million. We're on track to meet our full year CapEx guidance of $860 million. The increase in CapEx from last year is explained basically by the acceleration in the growth of our Pay Television subscribers in Sky and our Cable Company which translate into a larger investment in receiver boxes. Also, by the launch of a new satellite in Sky's high def pay offering. And finally incremental CapEx of TVI, which is the Cable Company operating in the City of Monterrey and surrounding areas, which we did not consolidate for the full year in 2009.

In our Cable and Telco operations, Cablevision has been making the bulk of the capital investments. Cablevision is halfway through its $240 million investment program or $80 million per year which consists in the replacement of all 15,000 kilometers of coaxial cable with fiber. This will also allow Cablevision to grow at an accelerated pace in the coming years by offering better quality, high end differentiated data and voice services. This investment program will be completed in 2011.

We continue to maintain a very solid balance sheet. Our total cash position, including temporary held-to-maturity and available-for-sale investments, reached over MXN42 billion, out of which approximately 66% is denominated in foreign currency.

Our net debt position reached MXN100 million. As we have shown in the past, we will continue to remain disciplined with the use of our cash.

Thanks 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. In our core business segment, Television Broadcasting, we continue to draw a strong audience share. Our average sign-on to sign-off audience share during the quarter was 69.7% and our year-to-date audience share was 70.1%.

Our flagship, Channel 2, continues to deliver excellent performance, led by our novelas, which run from 4pm to 10.30pm daily. Weekday average prime time audience share for Channel 2 was 37.1% during the quarter, compared with a 34.7% in the second quarter of 2009.

Our novelas continue to be as relevant to our viewers and advertising clients as they were 10 years ago. Three of the four most successful novelas ever were launched in the past six years. During the second quarter, our final episode of Hasta que el dinero nos separe generated an extraordinary audience share of 51.3%. Even taking into account the [second] World Cup, this final episode was the number one rated show during the quarter.

Excluding World Cup matches and programs related to this event, all top 10 rated shows during the quarter were transmitted by Televisa, of which seven were in-house productions of Televisa and three were local soccer matches. During the second quarter, we transmitted 56 games of the World Cup through different platforms. The remaining eight games were transmitted during the third quarter.

Both our competition and Televisa transmitted the same 25 games of the World Cup in World Cup television. And I am happy to share with you that the only shared [cable] Televisa transmissions of the World Cup in every single of the matches.

We are also proud to share with you that for the fourth World Cup in a row, our commentary show produced around this event delivered significantly better results than our competitor's equivalent show, generating over 70% more ratings. This is a good example of how having good third party content is [now] sufficient. Our experienced team of producers, commentators, and entertainers make a significant difference.

During the quarter, our pay-TV Networks operation was able to grow the number of subscribers by 6.9% to 23.9 million subscribers around the world. Most importantly, the number of revenue-generating units, or RGUs, increased 18.2% year-over-year to a total of 127 million RGUs. This translated into a growth in the number of channels per subscribers to an average of 5.3, compared with 4.8 one year ago.

With a total of 21 channels available for distribution and the ongoing expansion in the transmission capacity by pay-TV operators in this region, there is plenty of room to grow.

Nobody produces more Spanish language content for pay-television than Televisa. As a result, our pay-TV channels are [delivered] in Mexico in terms of ratings, in many of the most important genre, based on the more rapid and commercial opportunities.

Our recently launched sports network, TDN, in only six months of being on the air became the highest rated sports network in Mexico City. In addition, we produce and distribute two of the top three rated movie channels; three of the top six rated general entertainment channels; and the top three rated music, video, and lifestyle channels in Mexico.

We reach our audience through multiple platforms. Today, the largest platform is broadcast television. Our ability to produce the large majority of the content that we transmit is our biggest differentiator. Given our scale, our ability to develop talent, and our production expertise, it is also one of the most difficult to replicate. This also means that we can extend the presence of our content to other platforms as we see fit.

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

(Operator Instructions). Michel Morin of Barclays Capital.

Good morning, everyone. Thanks for taking the question. You mentioned in your press release that in the Broadcasting segment 76% of revenues were upfront, and that compares to about 84% a year ago, and I think roughly around the same level over the last few years. So, I was wondering if this is typical of the impact from the World Cup.

And then, if you can remind us what the difference in pricing is for spot versus upfront.

Yes, the difference between spot and upfront, it's around 20%. And, yes, it is basically the same trend that we have seen, that differentiator of percentage between the -- your question was based on the upfront sales and the standard, right?

Yes, well, the main question was whether or not that 76%, which is lower than what we saw over the last few years --

Yes, that's only because of the World Cup.

Okay.

Yes, it is something that we expected, and it's pretty normal of our expectations.

So that would be one factor that would explain why you are reiterating the 5% guidance. Presumably, this means that in the second half you're going to be using more upfront than usual so that will be working a little bit against you in terms of year-on-year comparison; is that a fair assessment?

Yes, it is definitely fair. What we always see, and we saw in the last World Cup, is that the second quarter, as you saw, has better [audience] sales but then the third quarter has a very, very (inaudible). So, we expect some of the biggest clients to slow down a little bit the amount of advertising expenditure in the third quarter, and that's why we are keeping the guidance on a yearly basis.

Okay. And I noticed also in the press release that you've flagged in the pay-TV segment, and also at Sky, that you had seen a pick-up in advertising spending in most of those segments, and also at Sky you mentioned pay-per-view. And I'm curious, because these are items that I would say are probably a little bit more cyclical in nature, and certainly in terms of pay-per-view it's more discretionary in nature. Are you -- are we seeing kind of the beginnings of a pick-up in consumption? Or what would you attribute this to?

Well, in advertising, we attribute definitely to the World Cup, of course the ratings of our pay-TV Networks by itself are growing. The genre of sports, as you know, is a genre very well received by our clients; very demanding. So, in the advertising side, that will be my answer.

And pay-per-view depends on the events themselves, which we're offering on a particular quarter. So I think it's more event-driven than a general trend.

Okay, great. That's very helpful, thank you.

Andrew Campbell of Credit Suisse.

Yes, good morning. I heard you explain that you're not really more optimistic on ad spending in the second half of the year, and I was wondering if one of the issues that's come into play here is the migration of advertising over to online media, and if you think, given the numbers that you mentioned for the portal, the very strong numbers, that this is something that is starting to have some impact on growth?

Well, it has nothing to do, to tell you the truth, with online media advertising. Basically, what we're saying is that there's a lot of substitution revenue and reallocation of budgets from -- into the second quarter, and to some part -- the first part of the third quarter as a result of the World Cup.

So, it's very much difficult to determine how much money is incremental to the World Cup or how much money is just a substitution or reallocation of budget. But as we have experienced in the past in World Cup years, it's also very -- it's always very tough in the third quarter because of this reallocation of budget and substitution by our traditional clients. But it's not because of online advertising that this is happening.

Okay, thank you. And if I could just ask one follow-up. There were some reports last week that Televisa would be looking at the Mayan Riviera Airport as a possible investment; can you confirm whether or not that's something that the Company is looking at?

Yes, Andy, we are looking at that option in respect to telecommunications only; to a telecommunications service has to be provided in the airport itself, not to construct the airport, nor to manage an airport; nothing of that sort.

That's great. Thank you very much.

Thank you.

Paul Steep of Scotia Capital.

Hi. Morning, guys. Wonder if we could talk a little bit about ratings. And just thinking about the back half of the year, how that looks in terms of the program line-up, or what's coming. It would seem on the major network it looks like the numbers have drifted a little bit, but it's hard to tell how much of that's just seasonality, or the cycle. And maybe you could put a little context around what's coming forwards that might lift those ratings again?

Actually, we are very happy with the results of the ratings so far. As you probably know, there is a big, big amount of very similar content in the month of June because of the World Cup. Actually, about 23% of the transmissions are related to the World Cup, which means that the big difference in schedule that helped Televisa from -- producing, original programs produced by us, uses a little bit of our strength because of the amount of attention to the World Cup.

Even with that, we are where we want to be, even higher where we expected -- of what we expected, in the month of June in our ratings and audience shares.

Today we started a new line-up, which we're launching a great novelas at 5pm. And the trend of our novelas is very, very good in the near future. We think that the second half of the year it's going to be right where we want it to be to be able to reach the expectations that we have for our clients, as well as our audience shares.

So, the productions of Televisa are very well prepared from a long time ago for all this year. And we feel very comfortable to the actual trends that we are seeing with the novelas that are already on the air, besides all the new shows that we're going to be launching either this month or in the next month for the rest of the year.

Okay. Two quick follow-ups then; one; I know it's going to be hard to pull out, but in terms of the Cable and the satellite business, any sense of how much of a distortion is in the markets from the World Cup? Obviously, some of those subs were driven by people signing up to see the content, any sense of how much that drove the additional sub revenue in the quarter?

Yes, it's very difficult to say, because also you don't know if someone subscribed because of packages that we're now offering, or triple-play or the World Cup.

Of course in the case of Sky, we offered all the 64 games in the more high def offering, so of course, all those subscribers that took that high def offering bought the new set-top box, of course, the World Cup was an important element to that. But it's very difficult to say how many precisely subscribed to those services because of the World Cup, and how many was because of the triple-play offer in the case of cable, or because of other offerings in the case of Sky, for example, the low [tier] offering that we now have.

Fair enough. Last one, just to clarify; I thought you said, Alfonso, $860 million in CapEx, so that means basically, back half of the year, you actually start to track down based on projects. But you mentioned some big projects in 2011. So, one, is the $860 million right? And two, what is the 2011 number? Is it revamped?

Yes you got it right. And as I mentioned, we're investing a lot of money in Cablevision in Mexico, where we're substituting all the network for fiber, and that's about $80 million a year. So going forward -- and it ends in 2011. So next year you'll also see $80 million; it will have to do with Cablevision in Mexico City.

Perfect, thank you.

Miguel Garcia of Deutsche Bank.

Thank you. Yes, my first question's regarding the growth in Sky, and I wanted to ask you if you can -- or Sky is putting anything in place to avoid affecting the cable operations of Televisa when offering the aggressive cheaper plans. Meaning, if they are targeting geographic areas outside Cablevision and Cablemas are present?

And the second question is regarding Univision, if you guys have seen any progress in negotiations? And also, whether these negotiations will be focused only on the PLA or it would be also including the acquisition of the stake in Univision? Thank you.

Hi Miguel. As to Sky's low-end offering and what we have seen in the last quarters since we announced it is that there's room for growth for all the companies participating, with an attractive low cost [TV] offering.

As you saw, there was tremendous growth of Sky, both in that package which is called [Red] (inaudible), but also in the high-end packages, like the high def packages that we're now offering. So we have solid high-end and low-end subscriber growth for Sky. And also in the same quarter we saw that our three cable investment added to close to 126,000 video subscribers in the quarter. So both Sky and the cable companies are growing at the same time with the low cost video offering.

As to Univision, we have a close relationship with Univision; we're the largest supplier of content to them, so we are always in conversations with them. But as far as an investment or anything of that sort, or a larger involvement of us in that company, I have nothing to report.

Thanks.

James Rivett of Citi.

Yes, good morning guys. Just on Nextel, I know it's not a subject we've mentioned yet. But can you tell us where we are in terms of the negotiations of all of the agreements, and the timeline by which we should see future announcements coming out of you guys, and out of the joint venture as well? Thank you.

Hi, yes, we have made a lot of progress in the negotiation of a commercial agreement. We expect to have a commercial agreement between Nextel and Sky, and Nextel and our cable companies, ready this quarter. But we're now focusing of course on winning the spectrum auction, winning the spectrum that we need for to carry out the business plan. So if it's not this quarter it will be the last quarter of the year, but we have made a lot of progress in negotiating those agreements.

Great. And I know it's early days, but is there anything you can tell us at this stage about the strategy, or any sort of detail that you can give us there?

I think, as I mentioned before, at this time we're focusing on winning the spectrum in the auction process, and of course we're working very hard also on the strategy. But for the time being we would not like to make any announcement in that regard.

Well, I had to try, thank you.

Okay, thanks.

[Cladio Vocaro] of [Battery March].

Sorry, this is actually (inaudible) on the line. My question is geared towards Pepe. And Pepe, if you could talk a little bit about what opportunities you see for Televisa's content in other platforms, and how much value you see there, that would be fantastic?

And if both of you gentlemen can talk a little bit about how you see the mid-term future in terms both of multi-platforms and in terms of the United States, that would be great.

Well, the opportunity that I see [in content as much as you do when] you have it. We have seen already great results in pay-TV, of course. As you know, we are concentrated in the target that clients like but also in the pay-TV area we have seen that now that we basically cover through our pay-TV networks service all the demographic that the (inaudible), the whole population of pay-TV looks for, as well as the targets that the clients, advertising clients, look for. We have seen that our content is in the first rated channels of all the pay-TV industry. So the content is definitely our biggest differentiator in all the platforms that we are and for all the platforms where we're going to be at.

You have also heard from Alfonso the result that we had in the opportunities [surrounding] (inaudible) [novellas] in online, even though that's a very small industry yet, I think that the content will be our biggest differentiator.

And if you add to that the cross-promotion opportunities that we're going to have through our existing communication business that we have, then there is a big, big opportunity of our being the leaders in all the Spanish speaking countries in the world (inaudible).

Yes, [Tomas], as far as the United States territory is concerned, you know the new platforms such as the Internet, both our (inaudible) portals, the vertical portals, mobile, video-on-demand, television everywhere, or any of those services that include other platforms, I would say that basically as a result of the lawsuit that had to do with Internet, we're kind of trapped, because we don't have the rights, and -- however, Univision doesn't have them either.

So that content for all those platforms is in a kind of limbo, where we cannot exploit them and Univision cannot exploit them. So hopefully one day we'll be able to reach an agreement with Univision, because that content is just there in limbo and it has a lot of value. And as Pepe said, I think that content would be very successful in the United States in all those platforms. So I think going forward hopefully we'll reach an agreement with them to be able to exploit and get a lot of money from that content.

Thank you very much gentlemen.

Mauricio Fernandes of Merrill Lynch.

Good morning. Thanks for taking the question. If you -- as we separate the revenue streams coming from the World Cup and the rest of the business that you've been broadcasting, have you seen any signs about -- on the economy, or increasing advertising budget? That's question number one.

And question number two is if you could share with us the -- what you estimate be the amount of revenues that come as a result of the World Cup? Thank you.

The results of the World Cup, we are not going to -- I mean we decided to keep it confidential for competitive reasons. Although -- we have seen basically they are really soft in the beginning of the year. The guidance we're keeping is based on what we -- we're keeping the guidance because it is based on what we have seen with the clients. We have had the result that they are asking for. We have been reaching the targets that the clients are looking for, but we are seeing the same.

We don't see more acceleration that we have here economically right through the country. So keeping with our guidance makes us feel very comfortable with expectations of revenues from our broadcast television.

Okay thank you. Let me ask it differently if I may. So was this year's World Cup any sort of different than in previous years as far as revenue is concerned as far as --?

No, I don't think so. As we mentioned, it's very difficult to know how much of the money went to the second quarter, because of the World Cup so there has been definitely a reallocation of budget, and how much money will the advertisers spend in the third quarter and fourth quarter, as a result of spending more in the second because of the World Cup. So -- and we will definitely I think experience some type of hangover of the World Cup in the third and fourth quarters. That's why we're being still, as you know, conservative in terms of our guidance.

It's always very difficult to know what clients are going to do in the third and fourth quarters in a World Cup year.

Thank you very much.

Thank you Mr. Jose Baston. I would now like to turn the conference back over to Mr. Alfonso de Angoitia for closing remarks.

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

This concludes Grupo Televisa's second quarter 2010 earnings conference call. You may now disconnect.