Grupo Televisa SAB (TV) 2021 Q3 法說會逐字稿

Good morning, everyone, and welcome to Grupo Televisa's Third Quarter 2021 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 Angoitia, Co-Chief Executive Officer of Grupo Televisa. Please go ahead, sir.

Thank you, Sara. Good morning, everyone, and thank you for joining us. With me today are Pepe Antonio Gonzales, CEO of Cable; Alex Penna, CEO of Sky; and Carlos Phillips, Antonio Lara, Corporate Vice President of Finance and Administration, respectively.

During the third quarter, we experienced an overall positive economic environment in Mexico despite the third wave of COVID-19, relatively high inflation and raising interest rates. The economic recovery continues to be led by demand of products manufactured in Mexico from the United States, while remittances sent by migrants north of the border keep hitting new monthly records and have helped domestic consumers.

In Mexico, around 66 million people have received at least 1 dose of the COVID-19 vaccines, accounting for 51% of the population, while about 48 million people have been fully vaccinated representing 37% of the total. This has continued to a more benign outlook for mobility and a new normality going forward.

Since the end of August, children returned to in-person classes for the '21, '22 school year, while labor force is gradually going back to the office. So we're confident that the Mexican economy will experience a rebound of 6% in 2021, including growth of around 4% in the fourth quarter. Moreover, the economic recovery should set the ground for GDP growth of about 3% in 2022.

Under this environment, our Content business continues growing at a healthy pace. Advertising activity from the private sector continues to be robust. Cable and Sky continued to perform relatively well, but several factors have led to soft RGU net adds for both, such as an increase in out-of-home activities, price adjustments at Cable and a still relatively high unemployment rate in Mexico. At the same time, some of these factors have translated into lower recharges at Sky's prepaid packages.

Moving on to our financial results for the quarter. Consolidated revenue reached MXN 26.1 billion, representing a year-on-year growth of 9.1%, while operating segment income reached MXN 11 billion equivalent to a year-on-year increase of 4.2%.

Bernardo and I are glad to see that most of our assets retained positive momentum in the third quarter. The strategy to turn around our Cable segment in 2021 has proven to be successful and will allow us to deliver year-on-year revenue and EBITDA growth for the full year. We are also excited about the opportunity that we have ahead of us to accelerate Cable RGU net adds more evidently in 2022, driven by the aggressive FTTH expansion plan implemented this year.

Now turning to the third quarter financial results in our Content division Advertising Revenue Increased by 15.8% as the economic recovery is causing a surge in activity in most industry verticals, fueling an acceleration in advertising the private sector. Most businesses are looking to reconnect their brands and products to consumers and Televisa's increased ratings during the third quarter, particularly on prime time gave us a great advantage.

Private sector advertising revenues were strong, more than 16% year-on-year. On the other hand, government advertising revenues remained relatively weak driven by ongoing austerity initiatives. As we have repeatedly mentioned, government advertising has been shrinking over the last couple of years. So today, it's share of total is already very low, particularly for Televisa.

Royalties from Univision of $110.7 million were 20.2% higher year-on-year, supported by materially higher ratings and the strong economic recovery in the United States. Univision's robust operating performance was also driven by several initiatives implemented by management, including a revamp of the sales team, the optimization of advertising inventory and focus on profitability.

Univision's solid revenue growth should continue in 2022, given the historically upfront with the highest volume and also highest prices. We are confident that Univision's traditional media business will continue to grow in the medium term, supported by the initiatives implemented by Wade and his team to revamp these operations. We are also convinced that the global streaming platform to be launched next year will be Univision's main growth engine.

All in, during the quarter, Content revenue increased by 13.4%, while operating segment income grew by 2.9%. Our Content margin contracted to 37.2% due to a difficult comp associated with more production of content, including sporting events related to the Olympics and the Gold Cup. In 2020, the COVID-19 lockdowns led us to have less content production costs as we broadcasted several reruns and many sporting events were canceled.

With advertising revenue up by 24% year-on-year during the first 9 months of 2021, we are confident that our full year advertising revenue will be very close to pre-COVID levels. We believe this is a highlights that free-to-air is still a key platform to build and improve brand recognition and to sell products and services in Mexico.

Moving on to the performance of our content. During the third quarter 18 of the top 20 programs on Mexico's broadcast television were produced and transmitted by Televisa. These included telenovelas, dramas, newscasts and comedies. Televisa's top 3 programs during the third quarter had audiences between 135% and 150% higher than the top-rated program of our closest competitor.

Throughout the week, Televisa's audiences were 97% higher than those of the second largest broadcaster, while audiences at our flagship network, Las Estrellas were 175% higher than those of our closest competitor. This shows that the audience gap with our closest competitor continues to increase compared to 89% and 151% higher audiences respectively during the second quarter, given the solid result ratings of our program.

During the third quarter, our main newscast had 61% higher than those at the other 2 free-to-air television broadcasters combined. Finally, the 10 soccer matches with the highest audiences in Mexico during the third quarter were transmitted by Televisa.

In the U.S. Univision's ratings on linear television increased by 16% year-on-year during the third quarter, significantly exceeding ratings growth for all other media companies in the United States. We are very proud to report that the strength of Univision's ratings has been driven by Televisa content which currently occupies 100% of Univision's prime time programming grid. These audience metrics in Mexico and the United States are evidenced that Televisa's strategy to revamp our content production implemented a couple of years ago have been very successful.

Now let me turn the call over to Pepe Antonio, CEO of Cable.

Thank you, Alfonso. During the third quarter, our Cable segment delivered year-on-year revenue growth of 5.8% and while operating segment income increased by 5.6%. Our Residential segment revenue grew by 5.8% while our Enterprise segment, which accounts for around 15% of total Cable revenue, increased by only 0.6%, mostly due to the timing of revenue recognition.

Our Cable business keeps growing with higher average revenue per user, ARPU, in new sales and a strong improvement in the product mix. We added 52,000 revenue-generating units reaching a total of 14.4 million RGUs at the end of the quarter. To put this into perspective, for the full year 2019, we added [811,000] (corrected by company after the call) RGUs while the same number for 2020 was 1.4 million. This reflects that net adds in 2020 were an outlier, driven by an extraordinary surge in consumer demand for broadband.

For 2021, as social distancing measures have eased and the demand cycle for our connectivity products returned to normal, net adds have slowed down from a hangover effect, so to speak. Broadband continues to be the highest margin service. So we will continue to enhance it's product offering. We added 25,000 broadband RGUs during the quarter for a total of 5.6 million.

For the 12th consecutive month. We have been #1 in the Netflix ISP speed for and competitive speed index, confirming our trustworthy and competitive service. We continue to observe good result in voice RGUs as we added 68,000 during the third quarter. We have been very successful at selling this service to our customers. We had 59,000 net video disconnections during the quarter, largely due to customers prioritizing broadband services and looking to reduce their monthly bills. We keep strengthening our customer retention programs with particular focus on video. The fact that many customers kept our broadband services, should help in retaining video RGUs in the future.

Mobile customers continued to grow. At the end of the quarter, we had 139,000 RGUs, an increase of 18,000 from last quarter. Looking forward, as the economy keeps improving, we expect demand for our services to increase with potential opportunities in our small and medium-sized business segment. On the other hand, we don't foresee the extraordinary surge in demand we experienced in 2020 because of the pandemic. We are strengthening our sales promotion strategies and our customer retention programs to take [advantage] (corrected by company after the call) of these simultaneous effects.

In September, we made price realignments in 2 of our flagship broadband products, which significantly increased our sales by the end of the quarter. We expect this positive trend to continue.

Before turning the call back to Alfonso, let me say 2 million homes with fiber this year is on track. We ended the third quarter with 65% completion of our full year goal, up from 25% at the end of the second quarter. This will help us to gradually accelerate RGU net adds from 2022 onwards.

By the end of the third quarter, we had successfully launched fiber-to-the-home services in the cities of Guadalajara, Toluca and Durango. We are convinced that the expansion to selective location makes a lot of sense for izzi, considering that we have a nationally recognized brand exclusive content and high-quality service with competitive offers.

Thank you, PPT. Now let me turn the call over to Alex Penna.

Thank you, Alfonso. At Sky, revenue declined by 2.5% year-on-year during the quarter, driven by lower recharges of prepaid packages as children are going back to school and the workers are returning to the office. Operating segment income fell by 7.2%, driven by the amortization of certain sporting events, such as the UEFA EURO 2020 and the CONMEBOL America Cup.

Sky added 27,000 RGUs, despite having 2,000 video subs disconnections during the quarter. On the broadband side, we added [16,000] (corrected by company after the call) RGUs during the quarter, reaching a total of 722,000 broadband RGUs. In the aggregate, including our MVNO service, which added 13,000 RGUs during the quarter, posed with approximately 8.2 million RGUs.

Thank you, Alex. Regarding CapEx, year-to-date, we have invested $918 million, of which $680 million in Cable. As we discussed during the call for the first quarter, our CapEx target for 2021 includes: $850 million in Cable or $200 million more than what we invested in 2020, given that we will pass 2 million homes with fiber; $250 million in Sky and $75 million in Content and Other businesses.

I'm happy to share with you that in September, Mexico's telco regulator IFT and the Antitrust [authority] (added by company after the call) Commission COFECE approved the merger of our content assets with Univision. The transaction is still pending, some required regulatory approvals in the United States. In the meantime, we have been working closely to prepare the integration with Univision ahead of the closing, which will allow us to execute the digital transformation strategy and the launch of the global streaming platform as planned.

Also, on September 13, we announced an agreement with Live Nation Entertainment to move forward with the sale of our unconsolidated 40% equity stake in OCESA for a total consideration of MXN 5.2 billion. Although this transaction has already been approved by regulators, the time for its closing has elapsed. Therefore, we are waiting for new regulatory approvals to close, which we expect could be received before year-end.

To wrap up, with consolidated revenue and operating segment income growing by 7.4% and 9.2% year-on-year, respectively, during the first 9 months of 2021. Bernardo and I feel confident that our operating performance for the full year will show strong recovery.

In addition, the strategic initiatives implemented this year, including the merger of our content assets with Univision, the expansion of our FTTH Network and the monetization of noncore assets will materially strengthen our competitive position to achieve sustainable growth over the coming years.

Now we are ready to take your questions. Sara, could you please provide instructions for the Q&A?

(Operator Instructions) We will now take our first question from the line of Fred Mendes of Bank of America.

I have 2 questions here on my side. The first one is CapEx is increasing. Obviously, it does take some time between getting the [homes pads] and getting the net adds. But despite the strong increase in CapEx to reach our goal of 2 million homes pad, net adds in a downward trend. So how should we expect -- how do you see this net adds as we move forward? This is my first question.

And then the second question on Cable as well. If there is a major difference that you already serving between the performance where you have FTTH and the performance where we have cable, this basically having a stronger performance over cable or not really?

Fred, you're absolutely right that -- of course, the expansion of the FTTH network and the deployment fiber takes time and takes aggressive investments. And so it takes time to pick up the -- to install the network to deploy the fiber and pick up the subscribers.

What I can say conceptually is that the need for income connectivity in Mexico is still huge, and broadband penetration is still very low at around 60%. So these factors plus the additional 2 million homes that we're passing with FTTH, as you described, this year should allow us to accelerate RGU net adds. And that will, because of this lag, become more evident in 2022.

I'll ask Pepe Antonio to expand on this.

Yes. Thank you, Fred. One part has a bit of background. Let's remember that the net adds for 2020 were an outlier, and we're suffering from what we kind of call a hangover effect in 2021. Lots of people contracted broadband last year, and therefore, we're not having as many people contract or higher broadband this year.

To put this in perspective, in 2019, we added 800,000 RGUs while the number in 2020 was close to 1.4 million. But in 2021, we see 2 effects. On the one hand, the demand for connectivity has returned to pre-pandemic levels. And on the other, the economy is bouncing back. So we're trying to serve these 2 effects strengthening our sales promotion and our customer retention programs.

There's also a new issue that it kind of explains your question, which is we made a small adjustment in our prices in one of our flagship broadband products in September. And the September number is markedly different than the net adds numbers for the previous 4 months. So we expect that the twitch or the change in the price in the broadband flagship product and the building that we're doing should move us in the future towards more solid net adds in broadband.

We will now take our next question from the line of Alejandro Chavelas of Credit Suisse.

Congratulations on the results. I just wanted to get a little bit more color on the RGU losses in pay-TV, they seem to accelerate a little bit sequentially. I was wondering if it was related to a change in pricing of package or something. I think you have mentioned in the past that consumers don't really save a lot when they cut their pay-TV subscription within a triple play. So a little bit more color on that would be helpful, and I have another question after.

Alejandro, I'll ask Pepe Antonio to talk about (inaudible) disconnections.

Thank you, Alejandro. As we've mentioned before, the new video platforms present a challenge. Linear TV presents challenges not only in Mexico, but all over the world. In addition, the economic environment has been difficult. Most of our households -- I have a few points to make on this. Most of our households continue to be our broadband customers. Our bundle is competitive, offering affordable pay-TV services. So we believe that once the economy improves, this will recover. And we are seeing some incipient results that our triple-play sales have remained robust in the last few months. So we're very encouraged by that.

As a strategy, following the global tendency, we are continuing to push our strategy to become a content aggregator on top of our linear TV content, which is pretty popular. We're including several streaming services in our cable packages such as Blim, Netflix, Disney and Amazon Prime. So that way, we're trying to set up some of those offerings.

I think another issue that is very important is we are strengthening our video platform to improve the customer experience in navigating the different streaming services. And I think that will be a key differentiator for us. If people can serve the different teaming services without having to leave our set-top box and then come back and change inputs, et cetera, that's going to make a big difference for us. So I think in all of this, we should be able to maintain our video customers in the future. Thank you, Alex.

Great. Perhaps just a follow-up. This one is on the increase in content costs. Obviously, you had already mentioned that we will see a content cost rise significantly in turning to the one. But I was wondering how much of this is related perhaps to developing the new series for the global streaming platform?

Yes. Well, as you might remember, we had a full plan to revamp our content production some years ago. And of course we're investing in more content, we have new series. We have what we have now called (inaudible), which is a shorter version and a modernized version of the traditional telenovelas stories. But those have a faster pace. Those have less episodes, have less -- a little less drama. So -- and they have proven to be very successful.

Univision's prime time, as I mentioned in my opening remarks, now it's 100% based on Televisa content. So Univision will rely less on acquiring content from third parties, and this content has proved to be very successful, if you look at Univision's numbers during the third quarter. So I think, of course, we'll continue to invest in producing content, and that content will be better.

We have the tremendous advantage of having the best and most effective production of content in Spanish, in the world, in Mexico City, and we'll use that very efficient tool to produce more content. So I think streaming, of course, we will produce content ourselves for the streaming platform and we will also produce through third parties that will be key to the launching of the global streaming platform together with Univision. You'll be seeing very exciting products on the streaming platform, of course, higher quality products. So I think you'll be happy with the product, and we'll see a lot of subscriptions and a lot of sales.

We will now take our next question from the line of Matthew Harrigan from Benchmark.

Congratulations on the results. A couple of days ago, Netflix reported fairly modest results for the Latin American region in terms of their additions. And I think there's a consensus their SVOD [mature] businesses maturing. Is there any read through there to the potential of your business? I mean, clearly, you're much more AVOD focused and you have more content than Netflix does, particularly outside scripted programming. But can you talk a little bit more about the TAM down there? And do you have any comments on Peacock in the U.S. looking to do a lot more Spanish language programming?

Matt, yes, what I can tell you is that we're very excited about the product. Of course, we're going to be 100% focused on the Spanish language, which, as we have mentioned, the second most spoken language in the world aside from Mandarin. So we're focusing on this population, which has a GDP of more than $7 trillion. And of that, half, the $3.5 trillion is just the Mexican economy and the U.S. Hispanic market GDP. So we're going to focus 100% on the production of Spanish content.

We have moved a long way in this very few months. To launch this product, this global product next year, of course, we're already working on the production of original content. The new premium subscription tier of our global screening platform will feature more than 6,000 hours of Spanish language content with more than 30 original productions throughout next year.

We're going to feature globally recognized producers, creators, writers, including Maria Duenas, Santiago Limon, even Mario Vargas Llosa, who was a novel literature award winner. We just closed our first-look deal with Eugenio Derbez who's the top comedian in Latin America. He is Mexican.

So we have basically -- I mean, we're speaking to renowned actors, producers, writers, et cetera. So we're going to focus 100% of our attention to the Spanish language. And we believe that having the huge library of Televisa plus this new premium productions that are going to be exclusively on our new platform, this will be a success throughout the region.

We will now take our next question from the line of Alejandro Gallostra from BBVA.

First, I want to know if you can make further comments about the good performance of the -- of Univision, which royalties increased 20% this quarter. And second, if you could be more specific about the timing to launch the new streaming platform Univision and how you plan to review, if you are planning to launch several platforms at once AVOD and SVOD or do you plan to do globally? Or maybe you plan to launch it in the U.S. and Mexico simultaneously and the rest of the world later on?

And sorry, if I may, I was wondering if your Content margins will improve once you launch this streaming platform since and standard you've already spending in producing content for this new streaming platform that you will be launching next year, and you're still generating revenues out of it. So I was wondering if margins should improve once you launch the service?

Alejandro, yes, we're -- what I can tell you is we're very excited about what's happening at Univision. In essence, Wade Davis has revamped the whole team, but more specifically the sales team. He brought in Donna Speciale from Warner, and she's doing a spectacular job in selling advertising and positioning this advertising. Of course, this is all based on the tremendous success of our content of the ratings that the content is producing. The success also of the Mexican Soccer League games that Univision is transmitting.

So we are very excited about what's going on, both on the traditional business of selling advertising and also on what we're seeing in terms of the new streaming platform. What I can tell you, and you're absolutely right, we're delighted to see that the royalties from Univision amounted this quarter to $110 million. And you're right to point out that they were 20% higher than last year, but more importantly, because of the easy comp as a result of COVID, this was 10% higher than 2019 royalties for the third quarter.

So that only demonstrates that Univision is doing a tremendous job in the traditional business. And we believe that this will continue next year because we saw the upfront results and they look spectacular. They were the -- we had the best upfront in the history of the company, both in terms of pricing and in terms of volume. We can compare this upfront to what happened in 2016, 2017. So we're very enthusiastic also about next year and the advertising side of that business.

Now as to your second part of the question, which has to do with the launching of the streaming platform, [AVOD] will be launched in early 2022, SVOD platform in the second half of '22. We will start with Mexico and the United States and then expand throughout the region and other countries and territories. Of course, as I mentioned, first of the Spanish-speaking GDP, that is our addressable market, half of that $3.5 trillion is just Mexico and market. So of course, we'll begin there and then we'll expand to other places.

And I was wondering if maybe you could comment on the potential margin improvement in the Content division, since I understand that you're spending on producing content for this new platform, but you're still not generating revenues yet?

Yes. I think what I can tell you, Alejandro, we're not giving guidance as to our margin. And however, what I can tell you is that we merge with Univision, the combined company will see an expansion.

We will now take our next question from the line of Gordon Lee at BTG.

Most of my questions are on the content side and they have been answered. But I was wondering if you could just give us, not precise guidance, but would it be fair to say thinking about CapEx going forward at the consolidated level that we should be thinking about $1 billion annually? Is that sort of the new run rate, given the outlook for the Cable business?

Gordon, yes, it will be around there.

We will now take our next question from the line of Gilberto Garcia at Barclays.

On the closing of the innovation transaction, can you provide any color on any potential extraordinary corporate expenses that you might have? And what is the cohort expense like going to look like once the transaction is completed? And also on a press conference a couple of weeks ago, the President mentioned that the government is expecting around MXN 10 billion as a tax payment for the transaction. Can you confirm whether this number is final or is it still in flux?

Yes, of course, the corporate expenses will be reduced appropriately once we resize what we have called RemainCo or that is Grupo Televisa, and you will see the effect next year. As to the payment of taxes, it will be around there or I mean a little -- Gilberto, are you still there?

Yes. I'm sorry, I couldn't hear. You said it would be around there or a little and then it got cut off?

Yes, it will be around there or a little higher than that number, but around that figure.

We have no further questions. (Operator Instructions)

Thank you very much for participating in the call. And of course, as always, we're here to answer any other questions you may have. So thank you very much.

This concludes today's conference call. Thank you for participating. You may all disconnect.