Grupo Televisa SAB (TV) 2011 Q4 法說會逐字稿

Good morning, everyone, and welcome to Grupo Televisa's Fourth Quarter and Full Year 2011 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.

At the end of the call there will be a question-and-answer session. (Operator Instructions). I would now like to turn the call over to Mr. Alfonso de Angoitia, Executive Vice President of Grupo Televisa. Please go ahead, Sir.

Thank you, [Janelle], 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, Chief Financial Officer of Grupo Televisa.

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 will be happy to take your questions.

We're very pleased with our results for the quarter and for the year with both our content and our distribution businesses reaching their goals. Broadcasting met our full year guidance, Univision royalties increased by more than 40%. Our Pay Television Networks reached 30 million subscribers. Cable and Telecom topline saw double digit growth. And Sky added close to 1 million subscribers for a second consecutive year.

As a result for 2011, consolidated net sales and operating segment income increased 8.2% and 9.9% respectively. Net income decreased 10.3% to MXN6.9 billion. But the decline was explained primarily by larger depreciation and interest expenses. And by the weaker peso, which resulted in a larger non-cash impact to our net results.

In our broadcasting business, fourth quarter sales increased 5.1%. And for the full year, in spite of a very unfavorable comparison, increased marginally by 0.3% to MXN22.8 billion. During the year, Televisa's content continued to outperform in all its core platforms. Pepe will walk you through our content business in a moment.

Full year operating segment income decreased 1.8% to MXN10.5 billion. And due to our strict control on operating expenses, the margin was in line with guidance at 46.1%. In our pay-TV Networks business, the subscriber base continued to grow. Fourth quarter sales increased 23.3% and full year sales increased 14% to MXN3.6 billion.

Excluding the contributions to 2010 revenues of TuTV, which was sold to Univision, growth in our Pay Television Networks segment was over 21%. The growing popularity of our Pay Television Networks and increasing pay penetration are resulting in substantial viewership gains that were translated into significant growth in advertising revenue.

Full year operating segment income increased 11.2% to MXN1.8 billion. And the margin was slightly over 50%. The margin reflected the launch of new channels and some exclusive soccer matches.

In our Programming Exports business, fourth quarter sales increased 34.5% and full year sales increased 31.3% to MXN4 billion. The growth was attributable to an increasing royalty from Univision from $156 million in 2010 to $225 million in 2011. In addition, during the second half of the year, we received revenues from Netflix.

Full year operating segment income decreased 40.7% to MXN2.1 billion and the margin was 52.4%. Before I move away from content, I want to mention that starting 2012, we will report these three businesses, which are Broadcast, Pay Television Networks, and Programming Exports as a single segment. This line item will also include online revenue, which we had previously classified under Other Businesses segments.

Following the practice of some of the leading media companies worldwide, we will break down our sources of content revenue in advertising, network subscription revenue, and licensing and syndication revenue. Instead of our prior practice of allocating costs and expenses to our various content businesses, we will now report content operating segment income as a single line item.

From this angle, you will notice that our content business performed well during the year with content revenues growing by 5% to MXN31 billion, with operating segment income growing by 4.7%, and reaching a margin of 47.1%.

In our publishing division fourth quarter sales increased 3.3% to MXN975 million. While full year sales remain relatively flat, decreasing 1.2% to MXN3.2 billion. The broad geographic reach of this business allows it to offset weakness in some markets with strengths in others. For example, the slight decrease in 2011 circulation and advertising revenue in Mexico was partially offset by an increase in advertising and circulation revenue abroad.

For the year, full year operating segment income decreased 6.4% to MXN453 million. The margin improved to 14.2%.

Moving onto Sky, during the fourth quarter sales increased 11.2% as it added a total of 184,000 subscribers mainly in Mexico. Full year sales increased 10.9% to MXN12.5 billion, which is primarily the result of our addition of almost 1 million subscribers and is explained by the continued success of its low-cost offering.

As a result, Sky closed the year 4 million subscribers and a growth in operating segment income of 14.1% to MXN5.8 billion. We believe that's Sky's margin of over 46% is an outstanding achievement in light of the explosive growth of this operation in low-cost pay television subscribers. After two very solid years of adding close to 1 million subscribers each year, we expect growth in the top line to continue, but at a more stable rate of mid single digits.

In our Cable and Telecom segments, fourth quarter sales increased 16% and full year sales increased 15.4% to MXN13.6 billion. This increase was attributable mainly to an addition during the year of 623,000 revenue generating units, or RGUs in video voice and data services among our three cable companies. This is equivalent to a growth of 19% in RGUs to a total of 3.9 million by year-end. During 2011, operating segment income increased 22% to MXN4.8 billion. And the margin increased to 35%.

Segment for stability was also helped by the stronger margins [at this end].

In our other businesses segment, fourth quarter sales increased 7.8%. And full year sales increased 8.2% to MXN4.1 billion. This reflected the consolidation of our results of two soccer teams, as well as some success in our feature film distribution business. Better results in our gaming and radio divisions also contributed to the growth in these segments. As a result, full year operating segments loss decreased 35.5% to MXN119 million.

During 2011, we invested approximately $791 million in CapEx of which the $242 million were for Sky, $143 million for Broadcasting and other businesses and $406 million were for our Cable and Telecom segments.

During 2012, we estimate our CapEx -- our cash CapEx to reach a total of $850 million. Of this amount, $125 million is for our content and other business segments. For Cable and Telecom we expect CapEx to reach $475 million, much of which will result from the expanded growth in subscribers.

Also as a result of subscriber growth, CapEx of Sky is estimated to reach $250 million. In addition, we will account for $450 million as a result of the 15-year lease of a new satellite for Sky. This is a non-cash item. As of December 31st, 2011, our cash and equivalents were close to MXN22 billion.

Going forward, our priority will continue to be the investment of capital in our core content, distribution, and telecom businesses in order to enhance shareholder returns. As announced last December, we had exchanged our 41% stake in La Sexta for a 14.5% equity stake in Imagina, the controlling shareholder of La Sexta.

The relevance of this transaction goes beyond the improvement and the potential of our investments in Spain. Imagina is a main provider of content and audiovisual services in Spain and one of the most important in Europe.

The transaction also contemplates the potential for collaboration in content production initiatives. And grants Televisa certain rights of first refusal for some key sports and entertainment content. Last December, we concluded the negotiation of the up front for our broadcasting business, resulting in a growth of 8.9% for 2012. But, it's important to keep in mind that we started from a low base given the weak 2011 up front.

We will now be providing guidance for our content business as a whole, which includes as I mentioned earlier, other sources of revenue that we derived from our content. In the guidance for 2012, for our content business is a growth of between 6% and 7%, with an operating segment income margin of close to 47%.

We close out 2011 with solid performance in our content business, and an even better performance in Sky and cable. We are operating from a position of strength. And we expect that 2012 will be an even better year. But we're also facing challenges in our desire to tap into Mexico's growing mobile segment. We never said that this would be easy. But the size of the opportunity is well worth the effort.

With the investment in Iusacell, we are able to access a rapidly growing industry worth $17 billion in terms of sales and expected to reach $23 billion by 2015. We believe that Iusacell is the right platform for us to leverage our assets and participate in the explosive growth of this industry.

In the most recent [OCD] report, which criticizes Mexico's high margin mobile service industry as expensive and inadequate puts the (inaudible) the opportunity that we have at hand. As such, we are carefully analyzing our options and are taking the steps necessary to seek a favor of the resolution from [OPECA] regarding our investments in Iusacell.

Thank you very much for your attention. And I'll now turn the call over to Pepe.

Thank you, Alfonso. Good morning, everyone, and thank you for joining us. In the fourth quarter of 2011, and throughout the year, we demonstrated the value of our content across all of our platforms.

In our Broadcasting business, we continued to cap the absolute leadership. The highest rated show during the year was the final episode of the Novela Teresa, delivering a show of 53% with our year-long novela, (inaudible), which (inaudible) we significantly increased credit placement revenues.

So far, this is the telenovela with the finest contribution of credit placement to the [total] revenues. This is an important area of opportunity of growth that we will work on during this year. On [Sundays] we consolidated our leadership with our production of the fourth quarter of [Novelas Mexico]. The format of the popular US program [The Voice]. This show more than doubled the ratings of our competitor, and had also great commercial success.

In summary, during 2011 eight of the top 10 rated shows in Mexico and over-the-air television were introduced and transmitted by Televisa. And we achieve our target audience share for the year. The (inaudible) recall over the year television segment, our other platforms for distribution are becoming more relevant every year. In our Pay Television Networks segment, the average number of channels for subscribers increased from 5.2 in 2010 to 5.6 in 2011.

During the year, in addition to our new high definition networks, we successfully added Tiin to our package of channels. This new network targeting young teenagers compliments our existing portfolio of pay-TV channels and reaches of key demographics to (inaudible) advertising clients. The success of our pay-TV offerings, this also reflects that in advertising sales growth of 35%, which now represents 24% of segment revenue during 2011.

In terms of our content business, license the growing number of ways in which we've obtained, from advertising to network subscription revenue to streaming the video on demand. It also comes from the growing importance of our content abroad. Our Programming Export business grew by 31.3% during the year, driven mainly by the success of our content in Univision, and the revised royalty structure. We continued to work with Univision to make our company even more appealing to the Hispanic audience in the US and, of course, to their clients.

In addition, we continue to expand our presence in other markets and in other languages. And this is -- that is still in progression now and (inaudible). And has yet to solve this [floating] on the top line, which have made [this products] throughout this [month] this year.

Both our pay-TV Networks and our Programming Export business, I would not doubt an important source of high margin revenue with great [new] expectation for the content business Televisa. But we are not stopping here. Internationally, we continue to explore alternatives that enable us to build audiences that (inaudible) to carefully consider the strategic analysis.

Just recently we are announcing an alliance with [Children Pictures International] to create core productions for different European markets based on our successful format. Similarly, our recent alliance with [Lion's lab] aims to develop television formats for the US markets produced in English.

For example, with Nickelodeon we launched the pre-production process in 2011 for our telenovela to be aired in 2012 in the United States.

In our [digital leader] business, during last year we organized our internal efforts with a view to expanding the variety of ways in which reach our views via online platforms. [Reassured] this efforts with novela with Netflix for Mexico on Latin America. We are of the firm belief that making our brand is stronger, and expanding our programming choices, we've continued to drive solid organic growth.

During last year, we invested over MXN13 billion pesos in programming of which more than 75% was in the production of our own content. As a result of this investment, during 2011, we produced more than 80,000 hours of programming. In closing, I can say with confidence that this has never been a better time to be in the content business. Expanding number of platforms and (inaudible) where content can be transmitted continues to reward the creators of (inaudible) content. And Televisa's position like in all other media company to take advantage of this.

We are now happy to hear questions.

(Operator Instructions). First question comes from the line of Vera Rossi.

Thank you. I have a question about your Programming Exports. And also, about your guidance in content. First thing, Programming Exports, could you talk about the other revenues which are not coming from Univision royalties. I noticed these revenues are relevant. And they tend to be very volatile or to a certain degree, volatile on a quarterly basis. Even though, it was relatively flat on a year-over-year when we look at the US dollar revenues. Thank you.

And I would like to know -- sorry, what is the level we should expect going forward on these other revenues? And, if you can give us an idea what kind of content and what -- what are selling? Or, how we should see that other revenues? Thanks.

Okay, based on the revenues that we receive out of the United States systemic market, I can tell you that definitely the [fees] product is growing in a very small amount of our percentage. Although, we are as we speak in the development of core productions in different countries. Like an example will be Brazil and France right now. And the new deal that we did with Sony. And we are going to start to see better results in a few years.

We are starting to grow -- to develop this new way of doing business internationally. And we see that the only way to grow in markets like this it is not only by selling our finished product (inaudible) to the local language. But to get really into the core production business, which enable us also to be able to be part of the advertising pie of this countries.

So, I can tell you that you will start to see better results of growth in these countries in the near future.

There Vera, you also see within that exports business that we have about $90 million, which we sell to more than 50 countries of our traditional programming, which we produce for Mexico. And you also see there what we were receiving from Netflix. And we expect to receive from other over the top companies and ventures.

I see. And these revenues are they? They are in US dollars, similar to Univision?

Yes.

Yes.

Okay. So, that goes to my second question about your guidance in content. Your 6% or 7% growth for 2012, what is the FX rate that you are assuming to give us this guidance?

I think it's about in average MXN13 per dollar.

Okay, thank you very much.

Thank you.

Your next question comes from the line of Michel Morin.

Good morning. Just also, as a follow-up to clarify on guidance. I was wondering, can you actually tell us what we should -- what you are expecting for Univision? I think that you had given us a number a year ago. And also, maybe I missed it, but did you talk about the CapEx guidance for the year. And if you can -- if you can break that out by division. What has driven that and how much of that may be sustainable. If perhaps, this can become a new venue for growth for you. Thank you.

Michel, as to Univision, we are expecting for this year to receive our royalties of around $245 million. As I mentioned before, we come from 2011 where we received $225 million, which was an increase of 44% from what we received in 2010. As to CapEx, we estimate that our cash CapEx to reach $850 million.

Out of this amount, $125 million is for our content and other business segments. For Cable and Telecom we expect CapEx to reach $475 million, which is completely related to growth in subscribers. In the case of Sky, we estimate to reach $250 million of cash CapEx. Of course, it's also related to the growth in subscribers.

The growth of CapEx in the case of Sky is related to two things, growth in number of subscribers and also, high definition offerings and high definition boxes. As to Bestel, the margins of Bestel have improved because it has more clients and more clients were value added -- we're adding value and we're of course, getting a higher margin.

I think in the press release on Bestel, you also flagged interconnection costs. How significant of a driver has that been? I'm just trying to gauge how sustainable the current margins might be.

Yes, I think that is not really relevant for -- in the case of Bestel. I think that the margins that we have accomplished are sustainable.

Great, thank you.

Your next question comes from the line of Andrew Campbell.

Yes, good morning. I was wondering if you could just confirm that there have been no dividends proposed for the annual shareholder meeting this year. And is it likely that there will not be any proposed? And the other question is given the large cash outlets that you've had last year, what are you guys targeting for a leverage level, perhaps on EBITDA basis? Or, for example, or what is the kind of target range for the balance sheet? Thank you.

Hi, Andy. As to the dividends, we will propose to the next meeting of the board of directors. And if they agree, we would propose to a shareholder's meeting the payments of the ordinary dividends, which is around $100 million. As to leverage targets, we don't have specific leverage metrics. We normally issued that when we believe so that we can access capital under good terms. This doesn't mean that we don't have limits or controls. We consider it very important for Televisa to have at least investment grade ratings. We'll do our best to maintain it.

Okay, thank you.

Your next question comes from the line of Enrique Gomez.

Hi, good morning, and thank you for the call. I have two questions. One, is regarding the transmission of Channels 7 and 13 from TV Azteca on your Cablemas unit. If you could provide us an update? What is happening there? And also, if I understand correctly, Cablevision is transmitting those channels.

So, my would be does Cablevision pay for this over the year open transmissions? My second question related to taxes during the quarter. If you could just provide us some guidance on why were they so high this quarter? And what can we expect in 2012? Thank you.

Hi, Enrique. Well, as to the Cablevision and Sky, they are carrying Channel 7 and 13 because they have an agreement with [Trance] until the end of 2014. As to Cablemas, Cablemas is a shareholder and member of a company that buys content. We believe that -- we believe that's [nice] in the case of Televisa, that and as it happens all over the world, especially in the US, which is Mexico's largest trading partner.

Distributors have to pay the right amount of money -- a fair amount of money for the content that content producers make. What we believe is -- that will happen is that there will be a negotiation. And that will take place between the cable companies and TV Azteca. And finally, I guess, as it has happened on many occasions in the US, they'll buy the programming at a fair price.

Okay, great, thanks. And regarding the tax payment from the quarter?

Yes, well, taxes are in line with our results.

Yes, if the effective tax seems more like a 35%, the effective tax rate, I mean.

No, the effective tax rate is about 28%.

That's what you expect for 2012, full year?

No, I'm talking about 2011. The effective tax rate in 2011 was about 28%.

Okay, thank you very much.

Well, just -- I mean, to clarify the first question that you asked. Cablemas is a member of this association called [PCTV], which buys content. And they, Cablemas, it used to be a shareholder of PCTV. It had an old agreement with Television Azteca.

But that agreement they made through PCTV. So, now that it's no longer a shareholder, Cablemas continues to be a member of PCTV, but I believe that all those company's members of PCTV will start on negotiations with the TV Azteca. They'll get a fair price for the content that Televisa -- that Television Azteca offers. They'll buy the package programming at a fair price.

Okay, that's clear. Thank you, thank you very much.

(Operator Instructions). Your next question comes from the line of Rodrigo Villanueva.

Hello, Alfonso, good morning. I was wondering if you could give us an update on the process related to the acquisition of Iusacell. What are the next steps for Television [Azteca] to take against Cofeco? What time frame shall we expect in order for this to occur? Thank you.

Yes, thank you, Rodrigo for the question. As we know, the decision by Cofeco was a split decision. It was a three-two decision. Their main concern, and this split decision is related to our hypothetical and future collusion between Televisa and Television Azteca in both the television advertising and content markets. So, we understand their concern about two networks joining forces in a common venture.

Having said that, we must say that this hypothetical collusion or a collusion has never occurred in the past between this company. I could say that, there's plenty of evidence to that effect. Those type of solutions under the new competition law could be stopped at any time by the commission, if they were to happen. Since those collusions are illegal acts. Those collusions have criminal consequences. We will continue to work with the commission in order to address their concern.

Going forward, what we will do is basically to file an appeal before the commission as allowed by the competition law. We have 30 business days to file this appeal. They have 60 business days to respond to our appeal. During that process, we'll continue to work with them to address these concerns that I mentioned. We're going to fully concentrate on working with the commission and the commissioners to address these concerns. And get the approvals during the appeal process.

Understood, thank you very much. A couple of more questions if I may. First, I just want to confirm. Regarding Univision, you mentioned that the royalties you expect this year is $225 million. Is that correct?

No, 200 and -- yes, $245 million, Rodrigo.

$35 million, okay. A final question.

Yes, (inaudible). Yes, this comes form $225 million from 2011.

Okay, thank you very much. And finally question -- regarding the recent swap you did with La Sexta for Imagina. I was wondering if there are any guidance regarding potential synergies that we could see come up in 2012? Thank you.

Yes, well, we're working on those. Pepe is working on several ideas of our co-production in Spain. He can address -

You're talking about [volumes], one of the two most important producers of content in Spain and those guys are great creators of formats that can travel from Spain to other countries, including, of course, Mexico. And we also do the same in the way of the creation of content and format. What we are hearing right now is we are starting to analyze the different ways of synergies between both companies.

Because we are in different sizes of course, creators of new ideas and creators of new formats as well as create finished products. We're looking for different kinds of way to work together and (inaudible) this year (inaudible) -- I can guarantee that this year will be an important year in this relationship.

Rodrigo, before we leave you. I said $245 million in terms of royalties that we're expecting to receive this year from Univision, 2-4-5.

Okay, 2-4-5, thank you very much. Thank you for your answers.

Thank you.

Your final question comes from the line of Miguel Garcia.

Thank you. Two questions -- first, are you negotiating in any way or getting closer to negotiate distribution of content to DISH?. And if not, why not? And second, just going back to that issue about the cable operators in Azteca negotiation. We have heard in the news that a couple of cable operators have talked about dropping Azteca's channels because they could be too expensive or something like that. I just wanted to clarify that your cable operators, Cablemas and TVI could not do that, I understand because you have a month carry condition. Right? Just wanted to clarify that? Thank you.

Miguel, as to the situation between Azteca and the cable companies. As I mentioned before, they are part of a company or an entity called PCTV where shareholders of that company, or, in the case of Cablemas, as a member of that company not as a shareholder of that company.

They buy the content through that entity and that entity decided not to remove a [content] in Television Azteca for its content. Cablevision and Sky are not members of that -- nor shareholders of that venture. They buy their content independently. So, Cablevision and Sky have an agreement with TV Azteca that runs until the end of 2014. They are still carrying the content produced by TV Azteca.

In the case of Cablemas, they are members of this association, of this organization, PCTV. Through that organization, they have the deal with Television Azteca. Or, they used to have the deal with Television Azteca. And as I mentioned, as it happens in many parts of the world, I think that there will be an ongoing negotiation. That will take place in the following weeks. I expect that they reached to a fair price for the package that Television Azteca is offering. I don't know if that's clear?

Well, it's not. Because what I'm asking is whether your companies are forced to carry Azteca's content. Not whether they are negotiating or not?

Yes, in the case of our cable companies, we are forced as part of the [Must Carry] rules to carry the TV Azteca signals. However, as part of those rules, if Television Azteca wants to exercise that right, it is without payment.

Okay, that's very clear. And regarding, in negotiations with DISH?

Well, DISH hasn't approached us to buy our package of channels. As you know, as a result of our Must Offer obligation, which we negotiated with Cofeco some years ago. We're obligated to sell the same package of channels at the same price to all the distributors. We haven't been approached by them to buy the packaged programming that we offer at the price we offer to everyone.

Okay, thank you.

There are no additional questions at this time.

Well, thank you very much for participating in the call. Please call us if you have any additional questions. Bye.

This concludes Grupo Televisa's Fourth Quarter and Full Year 2011 Conference Call. Thank you for joining. You may now disconnect.