Grupo Televisa SAB (TV) 2010 Q4 法說會逐字稿

Good morning, everyone, and welcome to Grupo Televisa's Fourth Quarter and Full-Year 2010 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 would now turn the call over to Mr. Alfonso de Angoitia, Executive Vice President of Grupo Televisa. Please go ahead, sir.

Thank you, Elsa, and good morning. Thank you for joining us for this discussion of Grupo Televisa's results. With me today is Jose Baston, President of Television and Content, and Salvi Folch, our Chief Financial Officer.

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

We're proud of our results during 2010. We concluded the year with a solid fourth quarter, revenue growth across all core businesses, double-digit growth in operating segment income, an important and expanding telecom business with 5 million pay television subscribers, more than 500,000 telephone customers, a liquid position of over MXN30 billion and a renewed and exciting partnership with Univision. During the fourth quarter, consolidated revenue growth was 8.8%, and operating segment income growth was 18.7%.

Our results for the full-year 2010 were strong, as well, with consolidated net sales and operating segment income growing 10.5% and 11.2%, respectively.

In our broadcasting business, fourth quarter sales increased 2.1%, reaching MXN6.9 billion. As a result, broadcasting growth for the full year 2010 reached 5.5%, which is in line with our guidance. Operating segment income margin was 47.1% for the year, which is also in line with guidance.

During 2010, sales in our paid television networks business increased by 15% and our content reached 26 million subscribers. Growth from strong affiliates, as well as from a continued increase in advertising revenue.

Full year 2010 operating segment income margin reached 51.6%. As you may recall, the lower margin when compared with 2009 is explained by the launch of two new channels, our news network in February 2010, which has now migrated to broadcast, and our sports network, which we launched in August of 2009.

In our programming exports business, fourth quarter sales increased by 32% and full-year sales increased 8% to slightly over MXN3 billion. Operating segment income margin reached 53.8%, a fourth quarter record, and was 48.9% for the full year.

During 2010, Univision royalties grew to $156 million, compared with $143 million in the previous year. As we announced, the transaction with Univision was closed on December 20th and we soon will begin to see the benefits of a higher royalty rate on an expanded and faster-growing royalty base. In the meantime, Pepe and [Justine] have spent much of these first two months developing concrete plans of action for this new relationship and finding new opportunities for collaboration.

Our non-Univision export business also performed well and contributed with more than half of the growth of this segment during 2010. Our co-productions, in particular in Brazil, and our exports to Europe experienced growth of over 25% during 2010.

During the latter part of 2009 and most of 2010, we restructured our publishing business and we are already seeing the results of this effort. After six consecutive quarters of declining revenues, fourth quarter sales were practically flat and full-year sales decreased by only 3.8% to MXN3.2 million. Excluding the appreciation of the peso during 2010, full-year sales would have been flat, also.

Operating segment income margins have been in double digits in the last three quarters and full-year operating segment income margin improved to 13.2%.

While we see the restructuring and repositioning of our publishing business as an ongoing process, we have a solid profitable platform to work from.

In Sky, our DTH operation, fourth quarter sales increased by 9%, driven by the addition of 291,000 new subscribers. Our full-year sales increased by 12.4% to MXN11.2 billion.

As of year end, the number of subscribers exceeded 3 million, reflecting an unprecedented addition of 1 million subscribers during 2010. This extraordinary growth was due, in large part, to our new low-cost offerings. In addition, growth in the first three quarters of 2010 was particularly strong as a result of Sky's transmission of the World Cup, including many exclusive matches.

Fourth quarter operating segment income margins increased 44.3% and full-year operating segment income margins reached 45.1%, slightly higher than in 2009. Sky has been able to maintain margins at this high level because of the success of its new offering, as well as its strict control of related expenses.

Following the successful deployment of our low-cost offerings in 2010, we expect growth to normalize and margins to remain strong during 2011.

Our cable and telco platforms delivered strong results during 2010. Sales grew by 27.8% to MXN11.8 billion. Excluding the results of TVI, our cable investment in Northern Mexico, sales grew by 12.5% to MXN10 billion. The results of TVI were first consolidated starting in October 2009.

During 2010 and in spite of strong competition from DTH and telco operators, our cable investments delivered, in aggregate, RGU growth in video, data and voice of 10%, 24% and 37%, respectively. Total RGUs reached 3.3 million, equivalent to a growth of 17% during 2010, and the number of homes passed reached 6.4 million.

Fourth quarter operating segment income margins increased 34.5% and full-year operating segment income margins increased to 33.1%.

We expect that the low penetration of pay television in Mexico and the ongoing appetite for our triple-play packages and our attractive service offerings will continue to drive growth in this business.

In our businesses, fourth quarter sales increased by 8.8% and full-year sales increased by 1.1%, reaching MXN3.8 billion. Within this segment, gaming, software and radio performed well during the year.

In gaming, our new lottery formats continue to be successful and profitability of our bingo parlors is increasing, but the challenge of illegal competition remains.

During 2010, the contribution to growth by these businesses was particularly offset by the termination of a feature film distribution agreement with Warner Brothers.

Our capital expenditures during 2010 amounted to $1 billion. The bulk of our 2010 CapEx was growth CapEx. In the case of Sky, CapEx amounted to $437 million. The new satellite accounted for nearly one third of the total. The large majority of the rest was allocated to cover the cost of receiver boxes related to 1 million new subscribers added during the year.

Another $439 million of CapEx in our cable and telco segments was related to the addition of many new customers, as well as to the investment for the third year plan to upgrade all of Cablevision's coaxial cable to fiber.

For 2011, we expect CapEx to be approximately $850 million, the large majority of which will be, again, growth CapEx.

The terms of the 2011 upfront this year, we implement -- I mean, as part of this upfront plan, we implemented two very important measures that should position our business for stronger growth in the coming years.

We implemented a change from CPR, or cost per rating point, to CPM, or cost per thousand. This methodology, in addition to capturing our share of audience, takes into account the recurring growth in absolute numbers of television viewers. Equally important, we grew our rates, a long overdue and very justified adjustment.

As of the end of January, we have closed with most of our clients and we were able to pass price increases. However, our 2011 upfront shows a decline of 4% from last year's upfront. This gap is largely explained by the fact that Grupo Carso, which includes Telmex and Telcel, decided not to participate. It is worth mentioning that revenues from this group, including upfront and scatter, represented 3.8% of broadcasting revenues and less than 1.5% of total consolidated revenues in 2010.

We are confident that the ongoing success of our content and improving economic environment will support continued revenue growth. We are setting our guidance for our broadcasting revenue in 2011 at low single digits.

With regard to broadcasting margins during 2011, we will invest in expanding the quality and diversity of our content and in solidifying our leadership position. As such, we plan to incur additional expenses strategic to our business with, for example, the acquisition of scripts, the safeguarding of our talent, the negotiation of sports and other rights and the development of new, innovative programming. This should result in an operating segment income margin of approximately 46% in 2011.

We have shown to the market that we can maintain the leadership and profitability of our core businesses, even under difficult economic environments and that we can expand this leadership into telco with successful and competitive service offerings.

Our focus will now be in exploiting the benefits of our renewed relationship with Univision, in continuing to expand our revenue sources, particularly in data and telephony, and in maximizing the success and value of our investments in cable and telco.

Thank you for your attention. I will now turn the call over to Pepe.

Thank you, Alfonso, and good morning, everyone. During the fourth quarter we continued to demonstrate the value of our content across all of our business segments.

In our television broadcasting segment, we saw excellent results, particularly in Channel 2, which transmits practically 100% of Televisa's produced and first-run content, which includes most of the top-rated shows in the country. For example, the final episode of our novela, "Soy tu Duena," was the highest-rated program during the whole year.

In the aggregate, for our four broadcast networks during 2010, our weekday prime-time audience share average 70.5%.

In order to expand our client base and improve our audience mix, last year we replaced the general entertainment content of Channel 4 with our news and debate channel, ForoTV. This new channel grows a demographic which is highly demanded from a commercial point of view and complements our current offer.

As Alfonso mentioned, we continue to see very -- to see strong growth in our pay-TV networks segment. During 2010, the solid performance of this business segment originated from the launch of new channels, from the growth in advertising revenue and from the continued increase in pay television penetration in Mexico.

Growth in subscriber fees resulted from the launch of new channels in Mexico and abroad. For example, 2010 was the first full year of TDN, our sports network. It is must-have content, which will continue to make our portfolio of channels highly attractive.

The results of TDN have exceeded our expectations and it continues to perform very well, even after the conclusion of the 2010 soccer World Cup. It now reaches slightly more than 4 million subscribers and, measured by the pay-TV platforms that carry it, has reported better ratings than its competitors.

Our advertising is also growing at a fast pace and becoming an important source of revenue for these reasons, during 2010, advertising represented over 20% of this segment's revenue. It has grown, on average, 34% in the last three years and still represents approximately close to 6% of the advertising pie in Mexico in 2009.

We believe there is a great upside in this media platform and, as the leading producer of Spanish language channels for pay-TV platforms, Televisa is also the largest owner of advertising inventory for the pay-TV channels and the company best positioned to capture the bulk of the advertising budget in this platform.

Also, thanks to the launch of attractive, low-cost pay-TV offerings in the past two years, pay-TV penetration in Mexico is expanding at a very fast pace. Our own pay-TV platforms added, in aggregate, 1.3 million video subscribers during 2010. Other cable operators in the country experienced a similar pace of growth. Pay TV penetration in Mexico remains low, so growth is expected to continue.

As the main provider of content to pay-TV affiliate in Mexico, our pay TV network segment should continue to benefit.

In terms of Televisa's presence abroad, it is important to mention that our programming export business continued to grow during last year, driven mainly by the success of our co-promotions efforts, specifically in Latin America, and the appeal of our content internationally and, in particular, in the Hispanic market of the United States.

As many of you know, we completed a transaction with Univision this past December. The transaction has positioned Televisa to greatly increase the value of our content in the US by expanding its reach across additional platforms and, in this process, we are finding many more opportunities to grow.

For example, to enhance advertising sales, we are exploring product placement opportunities that allow us to generate revenue in each of our markets and approaching advertising clients with joint sales initiatives.

We are not only looking at increasing the number of pay-TV channels we export to the US, but also at creating new pay TV networks for that market. We are also working together with Univision to determine the best way to distribute and monetize digital content.

In closing, I want to stress the importance of our content creation and multi-platform strategy to Televisa's growth. Televisa's strategy fully embraces massive distribution through new mobile devices, tablets and Internet platforms.

In order to make our content available in all media platforms possible, Televisa has been digitalizing all of its content during the last five years and now we have a library of over 50,000 hours of content available for distribution. Furthermore, since 2007, all of Televisa's content is digitalized since the moment it's created, keeping in mind that every show will be distributed through more than one platform.

Unlike other media companies, we developed a large majority of the content that we deliver. We have the flexibility to export this content to other geographies, to other platforms and to other business models in a manner that maximizes its value. We have been doing so for a few years now and will continue to doing so as new viewing habits develop.

The flexibility will continue to be one of our most important competitive advantages.

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

(Operator Instructions). Your first question comes from the line of Tomas Lajous, with UBS.

Good morning, gentlemen. Thank you for the call. I guess I have two questions, one for Alfonso and one for Pepe. Alfonso, if you could actually clarify a little bit more on the upfront, how much does the Slim Group represent of your -- again, of your total advertising? I know you said this.

And what would the upfront -- what would the upfront looks like without Slim. So without Slim in the comp, what the upfront, the rest of the upfront, is doing?

And for Pepe, if you can talk a little more about things are going already at Univision. Can you talk about the Univision upfront? And can you talk about how well your ratings have been doing in the US? We've seen some pretty good ratings over the past couple of months. And what do you expect to bring in terms of both Spanish language and English language content into the US in 2011 and how that is looking?

Yes, hi, Tomas. As I mentioned, Grupo Carso represents 3.8% of broadcasting revenue and 1.5% of consolidated revenue in 2010.

So, I mean, we're ready to sell to them under what we consider to be fair conditions. We also believe that television is very important to any advertising campaign in Mexico, especially for companies operating -- offering consumer products and services.

And I also believe, Tomas, that only Televisa has the reach and the ratings and the content offerings necessary for an advertiser to be successful on a national scale. So I would say that without Televisa an advertiser will miss a very relevant portion of its target audience.

And, of course, all other telco operators are now taking advantage of the opportunity and are advertising more actively on Televisa and some of them will take this opportunity to capture market share.

So let's see what happens. As I mentioned, we're ready to sell to them under what we consider to be fair conditions.

And --

So --

Sorry, Pepe. Alfonso, could you just remind us, could you just talk about upfront ex-Slim? So if you don't include him, were your upfronts sort of flat, sort of positive if you don't include him in the comp at all, what did you see from other guys?

Yes. We're still negotiating with some -- with other clients. So I would not like to get into those figures.

Okay, thank you. Sorry, Pepe.

No, based on -- I'm going to start with the upfront question that you asked about Univision that, by the way, we cannot have -- we cannot give you that information. You will have to ask Univision about it. But we know that they continue to perform extremely well.

The statistics released last week by the Census Bureau showed that the actual growth in the Hispanic population in many states resulted to be higher than the Census estimates. So we believe that the full release of Census figures will be a big boost in Televisa's efforts to transform their rating success into stronger advertising revenues and, like Alfonso said, we have been working already very closely with the Univision operating team of the networks and we are already seeing great opportunities of synergies together.

There is no doubt that our content is doing great, not just, as you mentioned, in the Hispanic market, but also in the general market and by seeing the results of our content in Mexico, that normally when they do good in Mexico they do better in the US, we have seen a great beginning of the year with our content, with the new launches of our novelas and basically the prime time of Channel 2 is stronger than in the last three years.

So we think that the content that they will be -- that they will start to transmit in the next few years is going to be even stronger than what they have on the air today.

So we definitely see great opportunities and, as Alfonso said, we have -- this year we are going to keep investing in keeping the best sources of scripts, as well as doing long-term deals with the talent, because we know that that is going to be key to be able to keep this consistency in the results of our content in the US.

So, we see a great year of ratings and we see a great year of synergies in this first year working together with the Univision team.

Okay. Thank you very much, Pepe. Thank you, Alfonso.

Next.

Your next question comes from the line of James Rivett with Citi.

Yes, good morning, guys. Two questions if I can. The first is, your CapEx looks very high for this year compared to the guidance you gave at the third quarter. Can you just talk to us about what that is? Have you brought forward some of the CapEx from last year into this year?

And my second question is just on the exports business, which is a remarkable performance this quarter. Is there anything -- sorry, two things. First of all, if we think about that, excluding currency, can you tell us what the underlying growth was within there? And is this the trend that we should expect now, going forward? Thanks very much.

Yes, thank you for your question. To the CapEx question for 2011 and '11, I'll ask Salvi Folch, our CFO, to take the question.

Yes. Hi, James. The CapEx that was close to $1 billion was in line with what we had expected. This CapEx includes the satellite from Sky that it was about $150 million, of which part of it is going to be paid in 2011.

So, if we break down the CapEx for 2010, Sky accounted for most of it, about $437 million. At Cablevision, $235 million. A large portion of it is related to Grand Slam. Cablemas, $105 million. Bestel, $44 million. TVI, $55 million and the television broadcasting segment another $135 million.

The guidance for 2011 on CapEx is $850 million. Sky has $270 million, given the growth that we expect on (inaudible). The Cablevision, it's $200 million, because -- which Grand Slam will continue throughout 2011. Cablemas is $120 million, Bestel is $50 million, TVI $65 million and the broadcasting segment $145 million.

Yes and as to your question as to the exports business, the appreciation of the peso resulted in, for us, in losing sales of around MXN160 million.

Wow. So that number that we saw in the fourth quarter, that growth rate is the number that we should expect, effectively, going forward?

About that number, yes.

Perfect. Thank you very much.

Your next question comes from the line of David Joyce with Miller Tabak & Company.

I just wanted to see if you had any update you could talk about, either with your wireless plans, how your strategy is evolving there and what might be going on with the La Sexta?

Yes, of course. As to wireless, the telco industry and wireless and that segment, the wireless segment, in particular, will continue to grow at a fast pace as we have been explaining in the past.

So we're seeking alternatives to allow us to leverage our strength, including our content and our marketing platforms, also our 6 million pay-television customers and our 50,000 miles of fiber and coaxial cable and, of course, our cash.

So we're back on the drawing board. Wireless is very important for us and for our telco strategy. So every option is on the table and we'll continue to look for this possibility in the near future.

As to La Sexta, the Spanish advertising market, as I'm sure you know, continues to be challenging. We're exploring many opportunities to either participate in the consolidation of the market or to maximize the value of our investment in La Sexta.

What I can tell you is that from an operating point of view La Sexta keeps performing well, with exceeding ratings. Those ratings have exceeded the goals and the business plan that we had and so we have now a 2011 budget and it does not contemplate any additional capital contributions from us.

So, for the time being, when La Sexta, under that environment, it's performing well and we'll continue to look for opportunities in terms of the consolidation of the market.

Great. Thank you for the update.

Thanks.

Your next question comes from the line of Juan Moctezuma with Credit Suisse.

Hi. Thank you for hosting the call. I have two questions, if I may. The first one is, when should we start seeing benefits from the CFE investment? And how material should these savings be?

And the second one is, regarding the cable segment, should we expect any type of M&A with your minorities or seeking other opportunities of buying other companies?

Yes, Juan. Well, according to the plan, we expect this joint venture that has to do with the fiber optics network of an electricity company to start operating service -- offering service in the second half of this year.

And as to consolidation of cable, as we have mentioned in the past, we'd love to consolidate the industry and we're also actively seeking opportunities. So, I mean, that's -- we'd love to consolidate the whole thing as soon as we can.

Okay. Thank you very much.

Thank you.

Your next question comes from the line of Paul Steep with Scotia Capital.

Thanks. Alfonso, maybe we can just clarify. You were going pretty fast there. On the operating margin, around -- you sort of alluded to special charges, which sounded, in part, almost like investments. I got the 46%. I just wanted to clarify what those investments were in broadcast. It sounded like more content?

Yes. Pepe can get into the details of this, but we will make strategic investments, as Pepe was referring to, in script, talent and other things. So, I mean, we want to be absolutely sure that we have everything in place and that we can continue with experiencing the leadership that we have in all these years.

Okay.

Basically, we have seen since about a little more than a year and more actively lately that there is a lot of competitors trying to get our talent, competitors trying to get very important key factors that we need to be able to keep the consistency of the success that we have in our content, so we decided to do a little bit more investment than normally to be able to keep this position of leaders by doing different kind of strategic moves.

Okay, fair enough.

I went fast, but, I mean, broadcasting operating segment income margins will be 46% in 2011. That's the guidance that we're giving.

Okay, fair enough. And that helps. Sorry, one last one of that and then we can leave it. Have you locked up multi-year deals? Is there something here that sort of extends the franchise power for a longer period versus normal? Or you sort of convert the market change that sounds like it's going on.

Yes, I mean, we're investing in several things such as sports right, for example, that are multi-year contracts.

Got it.

Yes, basically, all the deals that we're doing are going to be multi-year deals.

And they're all platform, obviously, digital and traditional, right?

Yes. In the vast majority of them, yes, we include all the platforms.

Our content -- as you know, the content that we produce goes to all the platforms and all the world.

Yes. I was more worried about the sports stuff, just on digital and securing that down. So go it.

Last two for me and I'll hop. Actually, why don't we just jump to this for Alfonso. Where does the cable network sort of stand at the end of 2011 when we look forward in terms of the balance of that investment? Is it mainly homes passed versus sort of upgrading your core network and sort of continuing to push service levels up? Thanks.

I think it's all those things. I mean, we're improving the network. We're building new areas. In Mexico City we're investing a lot of money in taking fiber to the curb. We're about 75% of that plan done.

So we'll be able to offer better services, better quality, more speed. So we believe that we're positioning this Company to be able to compete and offer better services than their competitors.

Great. That helps. Thanks, guys.

Thank you.

Your next question comes from the line of Mauricio Fernandes with Bank of America.

Good morning, everyone. A couple questions. Alfonso, first on -- I think you mentioned it, but pay TV networks and programming supports were pretty strong, year-over-year on quarter-on-quarter basis. So I'm just wanting to clarify whether for those two businesses we should expect that level of revenues and EBITDA to be sustainable going forward?

And the second question is on publishing. Small relative to the overall Company, but it looks like, as I think you mentioned on your opening remarks, that after the restructuring it's now producing results. I just want to know if -- whether you think we have reached an inflection there where we can see revenues and EBITDA for this business where it is right now, going forward?

Yes, well, to the pay television networks business, we believe that it's a business that will continue to grow. According to the 2009 data, pay television represents close to 6% of (inaudible) spent in Mexico. So for Televisa networks in 2009, it represented about 19% of total revenues and in 2011 it represented 23%. So over the last three years, it has grown more than 30% annually.

So this will continue to grow. We believe that EBITDA margins in this business in the television networks division has the potential of reaching mid-50s again. So it will -- I mean, it will get back to the mid-50s.

As to publishing, as you know, we restructured the whole company. We got rid of many of the magazines, of the titles that we had. So it's a streamlined company and it's operating much better than it used to.

It's a great company. It's the largest publishing company of magazines in Spanish in the world. It's a company that doesn't require CapEx or investments. So I think we'll be seeing better margins this year. We'll get back to the margins that we had in the past and we're happy with the restructuring and it has been a huge effort to take care of that, but now I think this year we're going to see the results of that restructuring.

And I believe that we're moving in the right direction.

Okay, thank you. And one more on -- going back to broadcasting TV, I know the upfront is still negotiating there, so fine. But I just wanted to confirm the number you mentioned that, still, given particularly the recovery of the economy in Mexico, the expectation for this year would be for low-single-digit in total broadcast TV sales. Right?

Yes.

Okay. I just wanted to confirm that. Thank you.

Yes.

Your next question comes from the line of [Enrique Gomez] with HSBC.

Good morning, everyone. Thank you for the call.

I have two questions. The first one is regarding ARPUs on the pay TV businesses. If you could provide some guidance for this year, going forward? We've seen on the satellite business that the ARPU has declined importantly and on the other side, the cable and telecom ARPU has been able to remain stable. So if you could provide some guidance there.

My second question is regarding some news we have seen here in Mexico. The government apparently has a project to ban sales of the so-called Miracle products. If you could just provide us an idea of how important these products are for your sales and if this project goes forward, what kind of impacts could we expect to see? Thank you very much.

Based on your second question about the government issue about the miracle products, it represents a very, very small amount of money in our revenue. So we are not worried about that.

As far as your second question, give us one second, please.

Yes, as to -- your second question has to do with ARPU of pay television platforms or telco platforms. Of course, as a result of the success of low-tier package of Sky where we added 1 million subscribers in 2010, of course ARPU has gone down. But that's part of the plan, right?

As to cable, we're also packaging and we're having the triple-play offerings, so as a result of that, ARPU should be slightly lower.

Okay. Thank you very much.

And your final question comes from the line of James Rivett with Citi.

Hey, guys. Sorry, just to follow up, we haven't spoken this time about either dividends or buybacks. Can you give us an update on where we are on both of those two things? Thank you.

Yes. Well, as to dividends, we're going to consider the payment of a dividend in the next Board meeting in the month of April. So we have, as you know, a dividend policy of paying about $100 million a year. So depending on the investments and the opportunities that we can capture, we'll pay a dividend.

And also we'll continue to be buying stock back and that is opportunistic. So depending on the price and market conditions we'll continue to do that this year, as well.

Great. Can you -- do you want to give us an amount of money that you think you might end up spending on the buyback? Or is that part of the opportunistic nature of it?

Yes, it's opportunistic so, I mean, I would say depending on market conditions and the price of -- we'll buy more or less. So, I mean, it's 100% opportunistic and considering the market conditions.

Very good. Thank you.

Thank you.

There are no further questions at this time. I would now like to turn the conference back over to Televisa's management for any closing remarks.

Well, thank you very much for participating in the call and please give us a call with any questions that you have.

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