Grupo Televisa SAB (TV) 2013 Q3 法說會逐字稿

Good morning, everyone, and welcome to Grupo Televisa's third quarter 2013 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, Eva. Good morning, and thanks to everyone for joining us today. With me today is Jose Baston, President of Television and Content, and Salvi Folch, our Chief Financial Officer.

I will begin by taking you through the highlights of our third quarter financial results. Then, Pepe will discuss the operating results of our content segment. We'll be happy to take your questions right after that.

During the third quarter, consolidated sales increased 8.1%, and operating segment income increased 6.1%.

Starting with our content businesses, revenue increased by 5.3%, to Ps.8.8 billion, during the quarter, and the margin reached 50.2%.

Within our content division, advertising revenue expanded by 5%. This is a very solid result in light of weak advertising spending by local and federal government entities this quarter.

Our other two sources of content revenue also grew at a solid pace. Network subscription revenue expanded by 6.2%, and licensing and syndication revenue expanded by 6.1%.

IFETEL has yet to determine how the mechanics of the must-offer and must-carry rules should be implemented. In the meantime, we have provisioned an amount for the last 15 days of the quarter in network subscription revenue since the must-offer and must-carry rules became effective. We continue negotiating with pay-television distributors the packages and pricing of our pay-television channels. Therefore, we cannot give you an indication right now of the actual impact that this will have in our results.

Univision continues to perform extremely well. Royalties from Univision, which we account for under licensing and syndication revenue, reached $71 million. That is equivalent to a growth of 15% from same quarter last year. We're on track to receive close to $270 million in royalties from Univision this year.

Moving on to our telecommunications business, during the quarter SKY added over 233,000 new customers, reaching a total of 5.9 million subscribers. The pace of growth is slowing down when compared to last year, but it remains remarkably strong. This operation continues to exceed our expectations, especially in light of the difficult economic environment and the competition from DISH.

During the quarter, SKY delivered a record revenue of Ps.4.1 billion, equivalent to a growth of 10%. Operating segment income reached Ps.1.9 billion, with a margin of 46.5%, or 50 basis points higher than last year's.

By 2015, SKY will be launching a new satellite. As you know, SKY has been growing at an explosive pace. It has more than tripled its size in the last four years. We want to have more satellite capacity to offer more services, including high-definition content, to more customers.

Our total investment in the satellite will be $380 million, of which we are paying approximately [$70] million in 2013. For that reason, our CapEx guidance for 2013 is increasing to approximately $1.1 billion.

Our cable and telecom segment was the biggest contributor to revenue growth this quarter. Revenue expanded by over 12%, and operating segment income margin reached 34%. Excluding Bestel, the combined margin of our three cable companies reached 35%.

In the aggregate for our three cable operations, revenue generating units, or RGUs, expanded by 9%, while data and voice RGUs expanded by 25% and 19%, respectively. This was possible in spite of a very complicated macroeconomic environment in Mexico.

But we want to step up the pace. Lower cable margins this quarter reflect our aggressive plans to drive even faster subscriber growth. As a result, this quarter we invested in expanding the sales force, the installation fleet, and points of sale. We're also advertising more. We expect to show the benefits of this investments in our results in the next few quarters. We remain very enthusiastic about our prospects for this business.

Bestel had a challenging quarter. One of Bestel's most important sources of revenues is the managed service business. This quarter, Bestel was particularly impacted by the lack of new public business from governmental entities. As you saw, revenues in Bestel expanded at a healthy pace of close to 9%, but the growth this quarter was in businesses with a smaller margin contribution.

Revenue in our publishing business experienced a drop of 5.2%. The decrease is explained by a challenging environment across the publishing industry which in our case meant lower circulation and advertising revenues, both in Mexico and abroad. Operating segment income margin reached 8%.

In regards to our other businesses, revenue expanded by 18%, to over Ps.1 billion. The growth resulted from an increase in the revenue of our soccer business, due to the sale of some players, and better performance in our gaming and radio businesses. Operating segment income reached 9% in this segment.

Moving on to our CapEx, during the third quarter of 2013 we invested about $291 million, of which $165 million were in cable and telco, $80 million in SKY, and $46 million in our content business.

In line with our plans, we made an additional capital contribution of approximately $12 million in Iusacell. Since we announced our intention to invest an additional $400 million in the company, so far we have invested close to $100 million. Additional capital contributions will continue to be contingent on the performance of the company and on the outlook for regulatory change.

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

Thank you, Alfonso. Good morning, everyone, and thank you for joining us.

As Alfonso mentioned, our content business delivered solid results in each of the three revenue sources, in spite of a challenging macro environment. Let me go over each of these.

Our advertising business expanded by 5% during the quarter. The automotive segment was particularly strong. The food, beverage, and personal care product segments show a lot of resilience.

In terms of programming, during the quarter we relaunched Channel 5, one of our four broadcasting networks. We renovated the content of this network to target an audience that is complementary and also very attractive from a commercial point of view. The new lineup is already working very well, and our audiences for these channels are growing.

At the same time, the telenovela genre is as strong as ever. In Channel 2, our flagship channel, our 4.00 PM telenovela delivered some of the strongest ratings of the last 10 years for that times of the day. And our primetime telenovelas deliver more than twice as many rating points as those of our main competitor in the broadcasting arena.

Our second source of content revenue, network subscription revenue, grew by 6.2%. Our pay-TV networks continue to grow, in reach and in appeal, and the average number of networks distributed per household continues to grow.

Televisa continues to produce some of the most successful networks of Mexican pay television, including the top three music channels, three of the top five movie channels, and four of the top five general entertainment channels. Without a doubt, the most successful pay-TV distributors in Mexico carry most, if not all, of these networks.

Licensing and syndication revenue, which is our third source of content revenue, expanded by 6.1% during the quarter. The royalties we get from Univision accounted for 62% of this revenue line. This quarter, royalties reached $71 million, compared to $62 million last year. This is an equivalent to a growth of 15%.

As you can tell, Univision continues to deliver strong audiences. During the second quarter, Univision hit a ratings milestone, winning the July sweeps after delivering a viewership among adults that was 6% higher than the previous year. This is in contrast with a double-digit drop by at least three major networks -- ABC, with 24% less; Fox, with 20% less; and NBC, with 12% less.

Univision's morning show concluded the 2012-2013 season with its best viewership in history. As a matter of fact, during the entire season it remained as the number one early morning show, with more Hispanic adults viewers than the combined audiences of ABC's Good Morning America, CBS This Morning, and NBC's The Today Show.

Over the years, competition for audiences has increased significantly. For example, pay-TV penetration in Mexico has expanded to about 47%, up from 24% just six years ago. Penetration of broadband and other forms of entertainment have also grown. I am happy to share with you that in spite of this, content revenue has expanded in each of the last 12 years. From our point of view, it is about [owning] the content that we transmit, monetizing this content via multiple platforms and geographies, and transforming ourselves as a viewer preference evolve.

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

(Operator Instructions) Vera Rossi, Goldman Sachs.

Thank you. My question is about CapEx. Could you talk about the CapEx trends for the whole business, especially cable, for the next year or two? And in terms of Cablecom, in case you can talk about at this point, what will be the level of CapEx this company will need going forward? Thank you.

Hi, Vera. Well, as you have seen, the cable companies continue to grow a lot. And this of course is a result of the investments that we have made. I believe that we will continue to invest heavily in those companies in the next couple of years, and after that we'll stabilize CapEx in those companies to a lower level.

I think there are many things that we have to do there in terms of their networks, and our plan is then to continue investing in them. And you will see the results in terms of growth of subscribers, especially broadband subscribers.

OK. And can you talk about Cablecom?

Yes. Well, as you know, we made an investment in convertible debentures of this company. So, subject to approval by IFETEL, we would convert those debentures into capital and then take over the company.

As we have always said, we believe that the right path for Mexico as a country is to have a second national network, and we believe that cable should be that national network that has a scale, and to accomplish that it would have to be a national platform. So, this company, Cablecom, is one of the last steps.

Of course, it is subject to approval by IFETEL. This is the conversion of the debentures. So, then, once we convert, we'll be able to bring that company in and to follow the path of becoming a national platform.

OK. Thank you. And I have another question about Univision. There has been some talks in the market about a potential IPO of the company. Is this something that --? In terms of time frame, is there any expectation from Televisa when it could be happening?

Yes. Thank you, Vera, for that question. We get it a lot. No decision has been made at this point about Univision going public. The company is performing extremely well, rating-wise and revenue-wise. We believe that Univision has a great management team that is doing a great job. So, Univision is becoming more and more appealing as an asset every day, but no decision has been made at this point.

OK. Thank you.

Rodrigo Villanueva, Merrill Lynch.

Hi. Good morning. Alfonso, my question is regarding pay-television subscribers. Over the last several years, Televisa has been adding around 1.2 million per year. And I was wondering if you would expect this number to increase in 2014, particularly given the transmission of the World Cup? That would be my first question.

Hi, Rodrigo. Well, I think we'll continue to see a fast pace in terms of increased number of subscribers. SKY has added about 1 million subscribers every year for the past four years. That's a very difficult pace to keep, to maintain. Of course, the World Cup is very important for SKY, and we're very bullish on SKY next year.

However, I think that that pace of 1 million subscribers every year will not -- it will not get there. However, we will see strong subscriber growth, but not at that pace.

Cable companies, we have invested a lot in them, and we'll continue to invest. So, I believe that you will see a surprise next year in terms of especially broadband subscribers. So, there, we're also bullish, and we believe that we'll have very attractive offers, in terms of broadband, all over the country where companies are located.

So, I believe that you'll see a very important pace in terms of subscriber acquisitions.

Understood. Thank you very much. And regarding the cable companies, given all the efforts that you have mentioned, shall we expect EBITDA margin for the three cable companies to remain at around 35% over the next couple of quarters?

Yes, around there.

OK. Thank you very much. And my final question, if I may, is there any additional update you could give us regarding the secondary legislations from the telco reform?

Well, the constitution established that those secondary laws will have to be approved by Congress within 180 days from the date the constitutional reform was approved. That constitutional reform was approved last June 11. So, the secondary laws would have to be approved by Congress sometime in mid-December. So, that's what the constitution establishes, and now Congress has to act and to comply with the constitution.

OK. Thank you very much.

Andrew Campbell, Credit Suisse.

Good morning. My question was related to the SKY satellite CapEx that you mentioned. Of the $380 million total, can you just repeat again how much of that you'll be recognizing this year?

And also, if you could refresh my memory because, as I recall, I think it was maybe last year that you recognized a large, it was a non-cash, component related to satellite capacity at SKY, as well? And so, is a portion of this basically replacement capacity? Or, is all of this growth related?

Thank you.

Hi, Andy. No, it's growth related, and what we'll recognize this year is $70 million.

OK. And was I correct that you had also made a significant investment, I believe it was last year, also in satellite capacity?

Yes, that's correct.

OK. Thank you. And then, my other question is just related to the other businesses, because there was a significantly better performance that related to this segment that has soccer, gaming, radio, et cetera. And is there --? Do you believe that this could be sustainable going forward? Or, were there some elements that made this quarter better than usual?

Yes, well, soccer had a better result, especially because we sold two players.

And gaming is having better results. We're operating the bingo parlors much better, and this year we expect them to sell about Ps.2,000 million. So, I think these operations are performing much better.

The movie production and distribution business is extremely cyclical. As you know, it depends on the movies that we're distributing in a single quarter. So, that will continue to depend on which movies we launch in the quarters.

Radio is having much better results, and I think they'll be able to keep that up and to give us better results in the quarters to come.

And the distribution company, the magazine distribution company, is a headache for us. We have that company because we own the largest publisher of magazines in Spanish in the world. As you saw, the results of the magazine business were terrible, but it's an industry situation. That company is migrating from a paper magazine business into the digital world, and we're making some investments there. But, we lost 50% of EBITDA in the quarter.

So, going back to the distribution company, we only have it because we own the magazine business, and it's a company that, I repeat, is a headache for all of us. We expect to have better results next year.

OK. Thank you very much.

Michel Morin, Morgan Stanley.

Good morning. Alfonso, just a follow-up on your earlier answer. You said gaming, you're doing about Ps.2 billion, if I heard that correctly? How fast is that growing?

Yes, we will sell in the year about Ps.2 billion, and we're growing low single-digit.

OK. All right. And then, on SKY, you talked about the rapid growth, adding 1 million subs per year in the last four years. And obviously, a lot of that has come in at the low end, with the low-end, entry-level packages. And I'm wondering if you can give us a little bit of qualitative comment around the behavior of those customers who've been coming in at the low end over the past four years? Are you seeing them spend a little bit more now than they did a year or two ago? What is the trend there? Because obviously on a consolidated basis, what we see is RPU erosion because of the mix. But I'm wondering on an underlying basis, are you seeing your existing customers spend more with you at SKY?

Yes, well, it's a prepaid business, the one that has grown more, which is VETV, and that is the one that is delivering the very strong growth results. So, it's based on recharges, on a monthly recharge basis. We have seen no erosion there in terms of recharges. They continue to have a steady pace.

We are also growing in our traditional business. So, there has been no cannibalization of that package versus the traditional one, and both have been growing.

So basically, the recharge level has been the same.

OK. OK. Great. And then, if I may, just one last thing is we know that you have a relationship with Netflix. And I'm wondering, Alfonso, are you doing everything that you can to monetize what is decades worth of content production that you have in your library? Or, is there still more to be done on that front?

I think we have made a lot of progress on that front. We have signed deals with Netflix and others. And in addition to that, we plan to launch a very competitive aggregator. Pepe has been working a lot on that. This is with content from our extensive library, as you were saying. We have millions of hours there of movies, of programs, of series, of telenovelas, et cetera. And we believe that this will be another way of monetizing that content, through the aggregator.

And when should we expect that?

In the next few months, we're planning to launch.

OK. Great. Thank you very much.

Thanks, Michel.

Andres Medina-Mora.

Hi. Good morning. I was wondering if you could tell us a little bit about the progress that we have seen in Iusacell and how this has been developing as part of the market share strategy for you guys?

Well, Andres, as you have seen, Iusacell continues to grow. We continue to live in a very challenging environment in what has to do with regulation. There has been a complete absence of regulation to level the playing field on telecommunications. And we expect that as part of the constitutional reform and as part of the rulings that will be passed by IFETEL, that playing field will be leveled and will permit Iusacell to grow more.

At this point, it has been a real challenge to grow, even with the investments that we have made. However, the results are better. We have been able to outgrow the market.

Perfect. And just one other quick question, if I could. If you could tell us a little bit about the progress and the timeline that we should expect in terms of the Cablecom deal? Thank you.

Yes, we have made no decision yet as to when we want to convert the debentures. So, there's no precise target date at this point in time. The option is exercisable within a 10-year period. Of course, this is subject to IFETEL's approval. So basically, we don't have a precise target date at this point.

OK. Perfect. Thank you.

Thank you.

Mauricio Fernandes, Merrill Lynch.

Thank you. Good morning. Alfonso, at least it wasn't clear to me about Univision whether -- it seems to me -- that you've come to a decision on whether or not to IPO it. But then, you said that there's no decision being made. So, I just wanted to follow up on what are the intentions with Univision, please? Thank you.

Yes. Well, what I said, Mauricio, is that no decision has been made at this point about Univision going public, and I referred to Univision performing extremely well, both rating-wise and revenue-wise. So, it has become a very attractive and appealing asset for an IPO. A lot of banks have visited the company and its shareholders, including ourselves, and they're proposing Univision to go public. But just to make it absolutely clear, no decision has been made by the owners of Univision, including ourselves, as to going public or not.

Understood. Very clear, now. Thank you very much, Alfonso.

Richard Dineen, HSBC.

Thanks very much. I guess following up on Vera's and Mauricio's question on Univision, there was a report today that the FCC will discuss lifting the 25% foreign ownership cap at its November meeting. And I guess that really sort of puts a different perspective on a potential IPO. But I guess with regard to your earlier comments -- that's very clear -- but just wondering about some of the mechanics? How do we think about your stake, your 8% stake? How do we think about the 30% convert? The additional equity option? Going into an IPO, are there any kind of conditions? Or, what kind of rights do you have, effectively, going into an IPO? If you could help us a little with that, that would be fantastic.

Yes, thank you. Yes, you're right. The FCC's chairwoman yesterday circulated a declaratory ruling that would clear the way on a case-by-case basis for foreign investment to exceed 25% of the equity of any company holding broadcasting licenses, such as Univision. We believe that this ruling will be voted next month. If the proposed ruling is approved by the commission and if we were to get approval from the commission, we would in essence be able to buy 100% of Univision's equity or convert our debentures into equity.

So basically, this was yesterday. We will explore that possibility, the conversion or buying additional equity from Univision. We will explore that possibility when the time comes. And it will depend of course on the terms and structure of any additional investment, and that would have to be of course attractive from the financial and strategic perspective.

What I can say is that the Hispanic market is of strategic importance to Televisa. We have been saying this for many, many years. Our content is appealing in the United States, and Univision continues to have solid results audience-wise because of our content. So, this is a strategic investment for us.

In essence, we will explore the possibility of buying additional equity or of converting our debentures when the time comes.

OK. Thanks, Alfonso. Maybe just a quick follow-up, if I may? I'm just wondering if there are any implications for the Mexican broadcast license auctions, given that I think there's a requirement for reciprocity? So, would this potentially --? A lifting of the US cap, would that open the way for US networks -- I don't know, Fox or NBC -- to potentially enter the Mexican market? Would that be the right understanding?

Yes, well, we were looking at this yesterday, and it's really interesting because what the FCC is proposing is to approve on a case-by-case basis foreign investment to exceed 25%. So, I don't know how that would play out versus reciprocity established by the Mexican constitution.

I don't know if you got the point, because since this will be on a case-by-case basis in the United States, this is not opening up 100% to foreign investment to anybody. But it will have to be approved per case. Then, I don't know how that will play out versus the reciprocity.

Sure. OK. Thanks very much, Alfonso. Thanks. Thanks, guys.

Thank you.

Well, thank you very much for participating in the call. If you have any additional questions, please give us a call.

Thank you.

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