Grupo Televisa SAB (TV) 2012 Q1 法說會逐字稿

Good morning, everyone, and welcome to Grupo Televisa's first-quarter 2012 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. Good morning and thank you for joining us for this discussion of Grupo Televisa's results. With me today is Jose Baston, President of our Television and Content segment 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 Content business. After that we'll be happy to take your questions.

We initiated the year with strong results, as all our businesses experienced double-digit growth in revenue and operating segment income. During the quarter net sales increased 14.8% to MXN15.1b and operating segment income grew by 21.9% to MXN5.6b. The increases in depreciation and in taxes were both related to the growth and profitability of our operations. As a result the net income attributable to controlling interest increased 93% to MXN1.5b.

In our Content business first-quarter sales increased 14% to MXN6.5b. The biggest contributor to growth -- to revenue growth was Advertising by nearly 10%. The fastest-growing Content revenue sources, however, were network, subscription revenue and licensing revenue, which grew at a rate of more than 20% each.

Operating segment income increased by 20% to MXN2.6b and the margin increased to 40%. As you can tell, Televisa's Content continued to outperform. Pepe will walk you through the details of our three revenue sources in a moment.

In spite of rapid growth in Content revenue during the quarter we are maintaining our full-year guidance of revenue at 6% to 7% and of operating segment income margin at close to 47%. The new federal electoral law will present our Advertising with certain challenges during the second quarter. For example, we are not allowed to sell Advertising to any governmental entity except in very few circumstances during this period.

This takes the current ordinary revenue away from us and would likely have a negative effect on our top line. The precise impact is difficult to measure at this point.

Our Publishing division also delivered strong results. First-quarter sales increased 14% to MXN696m and operating segment income grew 65%. Advertising was an area of particular strength, with non-domestic Advertising growth the most. As of the first quarter foreign revenues accounted for 62% of total Publishing revenues. The business continues to present challenges inherent to the industry, but we have managed to protect the value of our Publishing brands while maintaining profitability in this operation.

In the meantime we are taking the lead in maximizing the potential of our brands by expanding their online presence. As of the first quarter we have already launched 10 websites for a number of our most successful magazines which are built on a solid and consistent online following.

Moving on to our DTH operation, Sky revenues reached MXN3.4b, equivalent to growth of 12% and an operating segment income margin of 46%. Once again Sky delivered very strong results -- subscriber growth during the quarter, adding a total of 275,000 new accounts. This makes it the third-strongest quarter on record in terms of net additions, continuing the trend of the prior nine quarters.

While Sky's traditional premium subscriber base remains solid, the prepaid low-cost Pay Television offering remains the biggest source of growth. For that reason Sky is launching strategic initiatives to further maximize the value of these new commercial relationships.

In our Cable and Telco segments first-quarter sales increased 17% to MXN3.7b and operating segment income reached 35.3%. Excluding Bestel, operating segment income margin was 38.5%. The performance in our three cable companies exceeded our expectations. On average, video services grew by 10% and voice and data services grew by 28% and 34% respectively.

On a standalone basis the performance on each of the three cable companies was strong. In the aggregate our cable companies now have 2.2m subscribers and, together with voice and data services, a total of 4m revenue-generating units.

Given the low penetration of these services among our video subscribers the fast pace of our growth in voice and data is likely to continue. Overall, the performance of this business is remarkable given the strong competition that our cable investments face in each of the three services they provide.

In the case of Bestel revenues grew by 18% and contributed the most to operating segment income growth. Bestel's operating segment income margin nearly doubled to 27% when compared to last year. Bestel was helped by a better revenue mix, including a larger broadband service business and a lower contribution of long-distance revenues. Lower interconnection rates also helped to improve profitability of Bestel.

In line with our core operations the individual divisions within our other business segment performed equally strong. The top line in each of these businesses, which includes our soccer, radio, feature film and gaming divisions, grew by at least double digits. In the aggregate for these divisions revenues grew by 23% reaching MXN1.1b and operating segment income margin was 9.5%.

Our CapEx totaled MXN156.1m during the quarter. The bulk of our CapEx continued to be driven by growth of our Pay Television subscribers in Sky and cable. Full-year CapEx cash CapEx guidance remains at $850m, of which $250m will be invested in Sky, $125m in Broadcasting and other businesses and $475m in our Cable and Telco segments.

An additional $450m will be classified as CapEx, but will not have an immediate cash impact. This amount corresponds to a 15-year lease -- capital lease for a satellite for Sky which is being launched in the second half of the year.

As of March 31, 2012 our cash and investments amounted to MXN27b and our net debt position was also MXN27b. With regards to Iusacell we'll continue to seek approvement -- approval by the Competition Commission to convert our debt investment into equity. The primary objective of the conversion is to allow for an active involvement of Televisa in the day-to-day operations of Iusacell. Last March 15 we presented our appeal to the Commission in respect to the initial decision that they made to the [NIR] application.

We are confident that we have addressed the specific concerns expressed by the three commissioners that voted against the conversion. The Commission has until June 15 to issue a decision on our appeal.

Finally, I would like to inform you that yesterday we presented to the Board our proposal to pay a dividend of MXN0.35 per CPO on May 31, in line with our dividend policy. The proposal was accepted by the Board.

In closing, the last two years have shown that Televisa has a resilient business model that can overcome challenging economic conditions in a highly-competitive environment. The first quarter of this year was shown -- has shown us that our various divisions are also very well positioned to benefit from favorable macroeconomic outlook.

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

Thank you, Alfonso, and good morning, everyone. And thank you for joining us. During the first quarter of 2012 we continue to demonstrate the value of our Content across all of our platforms. When compared to the same time slot last year our prime-time shows delivered stronger ratings across most genres and time slots. 28 of the top-30 programs during the quarter were transmitted by Televisa.

The novelas genre continues to grow in reach and in appeal. The consistent success of our regular programming, together with four new novelas launched in the first quarter, allow us to obtain a share of 40% in Channel 2 during prime time, a level not seen in the past 12 years. The finale of one of our novelas was one of the most -- of the four most successful since 2007 measured in terms of revenue generated.

Beyond novelas we also had great success with our reality shows and specials. Without doubt, Sundays belong to Televisa. Our share of the audience was three-times larger than our -- of our competition and we achieved this with productions that reach the entire family. The interest in our content was reflected across our multiple revenue sources.

On the Advertising front we experienced solid revenue growth driven by strength in most of our -- of the sectors, particularly the financial sector and the non-durable consumer goods categories. Advertising on broadcast television was strong and on Pay Television it continues to grow at a fast pace.

The assertiveness of our Pay TV networks as an Advertising platform was driven not only by the growing demand for Pay Television services, but also by the strong ratings, which in the aggregate for all of our Pay TV networks distributed in Mexico increased more than 20% over year -- year over year.

Network subscription revenue grew by 22.5% during the quarter. This growth is also explained by the increased adoption of Pay TV in Mexico. We estimate that the Pay TV penetration now stands approximately 43% in Mexico. The availability of attractive Pay TV offerings is likely to continue to drive this penetration up.

We continue to seek the distribution of a larger number of channels among our existing customers and also among our new Pay TV platforms. As of March 31, outside Mexico the number of channels per subscriber was only 3.3, far below the total number of networks we make available, showing us the great potential in this region. Finally, during the quarter we also launched TVN 2.0, our second sports-only network, with a beginning subscriber base of over 6m subscribers.

Licensing and Syndication, our third source of revenue in our Content segment, grew by 25% compared with the first quarter of 2011. This revenue line benefited from a growth of 15% in Univision royalties, which reached MXN54m, from MXN47m the prior year.

The amount we receive in royalties today is twice as much as we did only six years ago. Results in this segment also reflects the revenues from the syndication of our content internationally and from our agreement with Netflix, which was not in place during the first quarter of 2011.

Univision, our newest partner, continues to advance its efforts to diversify its sources of revenue and get its fair share of advertising dollars. Every day Univision makes progress towards this goal. Univision finished the quarter as the number-three network in the country among adults, regardless of language. And on Friday nights it earned the title of number-one network.

For Pay TV platforms Univision launched the Telenovelas network in the [additional] Latino platform during the first quarter. This channel has already proven successful in Mexico and throughout Latin America.

Televisa's programming continues to have solid success among the Hispanic audience. Our prime-time novelas continue to rank number two and three in their time slots among coveted 18 to 34 demographic. During the quarter three of our productions were among the top-10 watched serialized programs transmitting on prime time, regardless of language.

In line with our efforts to extend our production expertise into other demographics we initiated the production of Hollywood Heights. This is an English language series based on the script of one of our most successful novelas. It will be transmitted on Nickelodeon in prime time during the second semester.

Finally, we are extending the reach of our successful co-production initiatives such as those in China and Brazil to new markets, including Columbia and Venezuela. The time spent watching Televisa content continues to grow as we access new markets and make it available on new platforms. We are committed to maintaining this trend, going and showing the result -- going on and showing the results of these efforts on our bottom line.

Thank you so much and we are ready now to take your questions.

(Operator Instructions). Your first question comes from the line of Andre Baggio with JP Morgan.

It's in relation to second quarter. Can you hear me well?

Yes, we can hear you.

Okay, sorry. I understand there is some -- on the political front there are some issues, but can't we imagine that growth should remain high for the rest of the year? And was there any influence from the (inaudible) companies advertising or not on Televisa, which is something that was an issue last year?

Yes, well, as to -- we are selling more Advertising, of course, as you can see in the results. However, the reason why we are maintaining our full-year guidance at -- our revenue at 6% to 7% growth is that we won't be able to sell any Advertising to any governmental entity in the second quarter, so of course that will affect our sales.

It represents a challenge for us in that second quarter. This represents for us recurrent ordinary revenue, as we explained before. So that's why -- even though, of course, we are selling more Advertising at better rates we are maintaining our guidance until we see what happens in the second quarter and what the effect of this electoral law prohibition represents for us.

Okay, and (inaudible)?

Yes, as to the last part of your question [Grupo Carso] decided not to advertise with us in -- towards the end of 2010 and hasn't advertised since. What we have always said is that we welcome everyone to advertise with us. I think we represent a very attractive proposition in terms of Advertising because of the reach and frequency that we offer our clients. But we are not expecting them to advertise throughout the rest of the year.

Okay, thank you.

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

Thank you. I was wondering if you could provide some more color on the Internet Advertising and usage. Do you have any metrics that you could help us out with there in Mexico? And also what is available currently in the US?

Well, the revenues in Internet grew in a very important percentage, although at still a very small pace. I think that there is going to be growth. We are in the process of planning the marketing strategy that we are following in our digital platforms, and mostly with the Televisa Content, which, by the way, is the most successful one in our country. But honestly it's very, very small already, although it is growing.

Thank you. And on your international Pay TV expansion are there -- are you still in the same set of countries that you have been, or do you have plans to grow beyond where you [haven't] in Central America and [currently]?

Well, we are -- as we speak we haven't grown in any important country yet. What we are doing right now, as I mentioned in the script, we are trying to have more channels in the markets that we are in right now. The average channel that we have right now is 3.1. We are offering -- it's over 12 channels, so we think that there is a good opportunity of growth in that area.

And besides that we are always looking for opportunities in new countries. One of the countries that we are seeing opportunities in the near future is Canada. And we think that we will be able to give an announcement very -- although it's still very, very early in the negotiations.

Great, thank you.

Your next question comes from the line of Rodrigo Villanueva with Merrill Lynch.

Good morning and congratulations on a very strong quarter. A couple of questions, if I may. My first question is related to your Other businesses and Publishing segments, which have been very volatile in the last couple of years, so I was wondering if we should expect the solid improvement in these two businesses to continue throughout the year.

And my second question is related to Iusacell. We understand that TV doesn't intend to acquire more than 50% of this company. So we were wondering if you could share with us what other alternatives could you propose in order for Consejo to give you the good to go. Thank you.

Yes, hi, Rodrigo. Well, as to the last part of your question that had to do with Iusacell, we are not interested in buying the 50% currently held by Grupo Salinas, nor I think that they would be interested in selling it to us. And also we are not interested at this time in investing in other mobile operators.

As to the first part of your question, I think Publishing is a company that we have restructured. Our Publishing division is larger in -- outside of Mexico than it is in Mexico; about 60% of the sales take place outside of Mexico. I think as a result of the restructuring that we have made we have improved the results and we will continue to see improvement, although we have a lot of challenges that have to do with the Internet and Internet penetration and sales of advertising on Internet.

As to the question that had -- the same question that had to do with other businesses, I think we -- you will see better results in other businesses. We are improving operations of our Bingo partners and Lotteries. I think that we are seeing the light at the end of the tunnel in those -- in that business in particular.

It has been really challenging because, as you know, there are many -- there are more illegal bingo parlors operating in the country than the legal ones. The illegal operators don't pay taxes, offer better prices etc., so it's a very difficult and unfair competition for us. However, as I mentioned, we'll see better operations this year.

Our Radio division continues to improve, as you saw. It's getting better results. They will also have the same challenge as Television in the second quarter, where they cannot sell any Advertising to governmental entities, which is an important part of their sales and recurring income. So in the second quarter you won't see the same numbers as are in the first one. However, there will be a pick up, we expect, in the third and fourth quarters.

Our movie -- feature film distribution company has better results also. It's a company that has volatile [results] because it all depends on the movie titles that we have every quarter to distribute in Mexico. So that is a company in particular that has a lot of volatility because it depends on the movies every quarter.

So I think in general you'll see better results in other businesses. We are about to finalize negotiations where we are going to sell one of our soccer teams. That soccer team had losses and that's part also of other businesses, so you'll see a better result in soccer in our other two teams as well. So I think in general in other businesses you will see better results.

Very clear, Alfonso, thank you very much.

Your next question comes from the line of Andres Medina-Mora with GMB.

Thank you, guys. Good morning and congratulations on the results. I was wondering if you could give me your guidance for subscribers for the end of the year in terms of Sky. And also where do you see your net debt standing for the end of the year?

Just lastly, real quick, if in case the Antitrust Commission does not approve still the acquisition of Iusacell, what other instances would you have after that? Thank you.

Yes, hi. As to your first question, well, we don't release the guidance for Sky as to number of subscribers -- the goal of number of subscribers for a particular year. What I can tell you is that we are seeing a very positive trend and we continue to sell our low-cost offering. We are going to strengthen that package and we'll continue to see strong growth in that package.

As to Iusacell, if the Antitrust Commission doesn't approve the transaction, the conversion of the debentures, of course we will maintain those debentures as an investment by Grupo Televisa. And we would appeal the decision by the Commission before the Courts in Mexico.

Thank you.

Your next question comes from the line of Andrew Campbell with Credit Suisse.

Yes, good morning. My question is regarding broadband services and if you have any update on the rollout of fiber to the home through the cable companies. And also if you could comment on some recent reports that Sky would also be rolling out a broadband service.

Yes, well -- hi, Andy. We have continued to make investments to take fiber to the curb in most of our cable assets. As a result of all the investments that we have made in Cablevision in Mexico City and surrounding areas, 100% of the network is fiber to the curb. And we are also investing in -- a lot of money in .X3, where we are going to be able to offer higher speeds to our subscribers.

So all the CapEx that we have invested in cable has been -- our -- part of that CapEx has been put into updating the network and taking fiber to the curb, especially in Mexico City and surrounding areas in the Northern part of Mexico and in some cities of the ones that Cablemas operates. So we will continue to do that. This year also part -- a large part of that CapEx have to do with network improvement and .X3 boxes to be able to offer higher -- much higher speeds throughout our network.

So overall more than 90% of our cable network is .X3 ready. Further upgrades, especially in the cable mass region, where you know that operates in 50 cities of Mexico, depends on the market potential in each city. So we go to each city and we see which ones we should invest in to take .X3.

Right now the average speed that our client gets is lower than the speed that we make available. So due to our network investments our data offerings are some of the most competitive in the market, with speeds, I think, ranging from 2 megs to 100 megs in many of the cities.

Thank you. And regarding the service, I believe it was referred to as a blue to go, I think, was the name that Sky would be in some cases selectively rolling out some fiber as well. Is that the case?

Yes. No, Andy, there -- yes, Sky is offering data services, but Sky is doing it through negotiations and commercial agreements with local telco providers in the particular markets where it's planning to offer those services. So it's not Sky launching a fiber network or anything of that sort, but it's Sky through commercial agreements with local telco providers.

Okay, great, and then just one last question. The one-off gain that you had in non-operating results related to the [Mahina] transaction, can you give us an idea how much was the gain?

Hold on a second, please.

Okay.

Yes, it was MXN24m.

Okay, super. Thank you very much.

Thank you, Andy.

Your next question comes from Enrique Gomez with HSBC.

Good morning (inaudible). I have two questions, one relating to your Content (technical difficulty).

I am sorry, Enrique -- Enrique, I am sorry to interrupt you, but we can't hear the question.

Can you hear me better now?

Not really. I can't hear you clearly.

Okay, I'll put the question later. Thank you.

Yes, the signal is really bad.

Okay, thank you.

Your next question comes from the line of Miguel Garcia with Deutsche Bank.

Thank you, good morning. I wanted to focus a little bit on this very strong growth you have shown in double and triple play by the cable operators. And I want to know if some of this accelerated growth is coming from the decline in interconnection rates by Telmex.

And related to that I wanted to know if these run rates we're seeing we can continue expecting them for the rest of the year.

And, lastly, if we are expecting any regulatory change which could help your telecom operators further? Thank you.

Yes, hi, Miguel. Well, the growth in our triple-play packages and subscribers has to do basically with all the investments that we have made in our cable assets, where we have launched, as a result of those investments, packages at more attractive prices and with higher speeds.

So, basically, we have launched through Cablevision in Mexico City and surrounding areas a new package is a single play of Internet and also we have launched it throughout Cablemas that is very attractive because it's a 3-meg service at a price that goes from MXN149 to MXN169.

So the growth that you see, especially when it has to do with broadband services, has to do with those offerings. And that is a result of all the investments that we have made that have allowed us to offer those broadband offerings and packages.

I think that we will continue to grow throughout -- to see throughout the year growth in our triple-play packages. And I believe that it's going to be at the same rate that we have experienced in this quarter.

And regarding the regulatory changes in the telecom sector that could help you?

Well, we are actively pursuing those changes. We believe that Mexico needs asymmetric regulations to level the playing field in the telecommunications sector. We are talking to everyone in Mexico, because we believe that it's the only way to compete against the incumbents. And we will continue to press and to try to convince everyone that for competition to grow in Mexico in the telecommunications sector we need asymmetric rules and asymmetric regulations.

Okay, thank you. And, lastly, do you think that Telmex has a good chance of getting the video license this year?

Well, I don't know. I think you should ask them. As you know, their concession contains an express prohibition in terms of offering video. That comes from the privatization of Telmex many years ago. So I think you should ask them, or the government.

Great, thanks a lot.

Your next question comes from Michel Morin with Morgan Stanley.

It's Michel Morin at Morgan Stanley. I was wondering if you could comment, Alfonso, a little bit more on the Content segment and the growth that we've seen accelerate this quarter, both for you and I think also at your main competitor. What's behind this acceleration in the growth?

And then, secondly, if you could comment or remind us again what we should expect as a potential negative impact in the second quarter related to the displacement from the political campaigns. Thank you.

Yes, hi, Michel. Yes, I'll ask Pepe to answer the question that has to do with Content.

Well, first of all, the (inaudible) -- the sectors where we saw more growth in the first quarter was the financial sector as well as the non-durable consumer goods category. And as you know the government is in the spot market and we saw a great importance of growth in the revenues.

We are seeing for the second quarter, as you know, the -- during election time we give free, of course, to the government a total of 48 minutes per day, per channel, evenly distributed from 6.00 am all the way to midnight. This inventory is used by the different political parties for purposes of their campaigns. So that is why we see an important problem in the second quarter. And we have seen that some of the clients have advanced some of their Advertising to the first quarter, although, as Alfonso has said, we keep of our yearly guidance.

Yes, but that's why -- as Pepe was explaining, so we are maintaining our full-year guidance of revenue at 6% to 7% growth and the operating segment income margin at close to 47%. Because we want to see what happens in the second quarter as a result of this prohibition of the federal electoral law where we cannot sell any Advertising to governmental entities.

And this of course is ordinary revenue that we have every quarter and we want to see the negative effect of that on our top line, and then to reconsider or not our full-year guidance.

Right. And, Alfonso, just looking out a little bit longer term you launched a lot of new channels in the last two to three years. Is it fair to say that if we take a two-, three- or four-year view that margins in the Content business really should be higher than where we are today?

Well, I think margins in the Content business will remain as they are today, similar to the ones we are seeing today. Of course, we have controlled cost and expenses, but it's difficult to keep up with that. I don't foresee any increases -- dramatic increases in cost and expenses. And Pepe has been extremely effective in maintaining those almost flattish and only considering the growth. But I think that the margins will remain similar to the ones that you have seen.

Okay, thank you very much.

Your final question comes from the line of Enrique Gomez with HSBC.

Hello, thank you. Can you hear me now well? Hello, can you hear me?

We can hear you. Yes, we can hear you, Enrique.

Okay, thank you very much. I am sorry about that. I have two questions; one is on the subscribers on Sky. We saw an important change in the trend of new subscribers per quarter. The trend was a declining one and this quarter it was reversed with the 270,000 new subscribers. If you could give us more color on that, that would be great.

And my second question refers to the effect of the foreign exchange rate on your results this quarter. We saw a significant FX gain on the financials, so if you could also provide more detail. Thank you very much.

Thank you, Enrique. Yes, as to Sky, we have seen great increases in terms of sales of our lower-cost package. It was a record for a first quarter in terms of net additions. So I think we have a great package, a very competitive package with the number of channels that we offer, including all the Televisa channels and the TV Azteca channels.

So I think as a result of that offering and also as a result of the great service that Sky is providing to its subscribers we have been able to grow. I think that we will be able to maintain that growth throughout the year. It's going to be a challenge because of the base that now Sky has of more than 4m subscribers. However, we believe that we will be able to maintain the trend.

As to the foreign exchange impact on our results, basically, we have two separate effects. One is related to sales and operating segment income. Year over year we had a depreciation of the peso. The average exchange rate for the first quarter of 2011 and 2012 were MXN0.12 per dollar and MXN0.1275 per dollar respectively. So then in terms of revenue we had a favorable impact of MXN163m and, in terms of operating segment income, a favorable impact of MXN35m. So that's the first effect in what has to do with sales and operating segment income.

And then the second effect had to do with our finance income, which includes the line foreign exchange gains or losses. There, the exchange rate appreciated from MXN13.99 as of the end of 2011 to MXN12.81 as of March 2012. So given that we have a net liability dollar position of about $300m, such a [depreciation] generated a foreign exchange gain of MXN342m. So we have those two effects, one is related to sales and operating segment income and the second that has to do with the finance income.

So they are [together]?

I'm sorry, I couldn't hear you.

So it's two positive effects this quarter?

Yes. We had -- the first one that has to do with sales and operating segment income, where we are comparing the exchange rate --the average exchange rates for the first quarter of 2011 to the first quarter of 2012. And, there, in terms of revenue, as I mentioned, we have a favorable impact of MXN163m and, in terms of operating segment income, of MXN35m. And then in what has to do with foreign exchange gains or losses we had a gain of MXN342m.

Perfect, thank you very much.

Thank you for your question, Enrique.

There are no additional questions.

Well, thank you very much for participating in our call. We are very excited about our results in the first quarter. And please give us a call if you have any additional questions.

Once again, thank you for your participation. This concludes today's conference call. You may now disconnect.