Grupo Televisa SAB (TV) 2021 Q1 法說會逐字稿

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

Thank you, Carmen. Good morning, everyone, and thanks for joining us. With me today are Salvi Folch, CEO of Cable; Alex Penna, CEO of Sky; Patricio Wills, Head of Televisa Studios; and Carlos Ferreiro and Antonio Lara, Corporate Vice Presidents of Finance and Administration, respectively.

It has been just over a year since COVID-19 dramatically changed how all of us live, work and interact. With vaccinations progressing worldwide, we expect a strong recovery in the global economy in 2021, and Mexico is poised to benefit from this turnaround.

Despite Mexico's 8.5% economic contraction in 2020, we are seeing solid recovery this year with GDP growth expected at around 5%. Private consumption is estimated to increase by 4.2% in 2021 after a decline of 10.5% in 2020 due to the pandemic, setting a solid ground for growth in demand for our services across all segments.

Despite the disruption related to COVID-19, our Content business has operated without interruption, entertaining and informing our audiences, and it is playing a critical role in education, which in Mexico is still mostly remote.

Our Cable infrastructure continues to perform well, helping to support our customers who have been working from home for over a year. This is a testament to the dedication, hard work and creativity of our employees. Bernardo and I want to express our gratitude and appreciation for all that they have done and continue to do to keep the business on track during this challenging time.

As we noted 2 months ago, the fourth quarter of last year showed a significant improvement in trends compared to the first 9 months of 2020. First quarter results in our core segments were quite strong, driven by momentum in advertising demand by the private sector and the need of our customers to remain connected.

Moving on to our financial results for the quarter. Consolidated revenue reached MXN 23.8 billion, representing a year-over-year growth of 3.2%, while operating segment income reached MXN 9.4 billion, equivalent to a year-over-year growth of 7.7%. Excluding the results of our Other Business segment, which continues to operate with limited capacity due to social distancing measures to prevent the spread of COVID, revenue for our 3 combined core businesses expanded by 7.7% and operating segment income grew by 12.4% year-over-year. This was driven by robust growth in Content, supported by a strong rebound in advertising revenue of 28.1%, a solid increase in Cable revenue of 7.9% and a consistent growth at Sky of 4.1%.

Even comparing our 3 core businesses with the first quarter of 2019, we experienced revenue and operating segment income growth of 10.5% and 5.6%, respectively. We firmly believe this confirms the strength of our results even compared to pre-COVID levels. Bernardo and I are pleased that our portfolio of core assets delivered strong growth in the first quarter despite the broader economic contractions. This gives us confidence that our operating performance will stay solid for the remainder of 2021 as the Mexican economy improves and as vaccination continues and people feel more comfortable resuming the rhythm of normal life.

Now turning to the first quarter financial results. In our Content division, advertising revenue increased by 28.1% due to both easy comps and a strong rebound in volumes from the private sector, where businesses are looking to position their products and services in front of consumers ahead of the expected strong economic recovery in the coming quarters. This is especially remarkable considering the earlier timing of Easter holiday, which moved into the first quarter in 2021 as compared to the second quarter in 2020.

Although many social distancing measures remain in place, most of our advertising clients are better prepared to operate in this environment than they were a year ago, and they have been more active since the beginning of the year. Private sector advertising revenues were very strong, growing over 30% year-over-year. On the other hand, government advertising revenues remained relatively flat, driven by ongoing austerity initiatives. Royalties from Univision of $96.5 million were basically flat, and we project them to improve as the U.S. economy is expected to recover more vigorously beginning in the second quarter.

In sum, during the quarter, Content revenue increased by 10.2%, while operating segment income grew very strongly by 47.3% driven by the higher revenue and ongoing cost efficiencies. Compared to the first quarter of 2019, our Content revenue and operating segment income were 3.2% and 4.8% above, respectively, while our Content margin was 40 basis points higher. As we mentioned during the fourth quarter conference call, we strongly believe that we have reached an inflection point in advertising revenue. We have experienced robust advertising consumption from the private sector, supporting our upbeat outlook for 2021.

We are very excited about the deal we announced last week. We will be taking our industry-leading content and production capabilities to the next level through a much anticipated digital transformation, as the combined Televisa Univision is expected to launch a global streaming platform in early 2022. By combining our media, content, production, library and IP assets with Univision, we will be able to deliver an unparalleled streaming experience for Spanish language content globally.

We are also thrilled to be joined by SoftBank, Google and the Raine company as Televisa-Univision shareholders as it reflects confidence in our digital transformation strategy, our world-class content production capabilities, content library and management team as we join forces to capitalize on future growth opportunities.

It is also a privilege for us to have Eric Zinterhofer as a partner. Eric is a very talented investor, a solid businessmen and an amazing person. We're also very happy about having Wade as the CEO of the combined company. He has a lot of experience in the media industry, in streaming content in particular, and has great energy. We believe that he will be an excellent CEO that will be able to achieve our ambitious goals.

The deal has been very well received already, and we look forward to closing the transaction later in 2021 upon receiving the approvals of Televisa shareholders as well as the necessary regulatory approvals in Mexico and the United States.

I will now turn the call over to Patricio to discuss our progress in Content during the quarter.

Thank you, Alfonso. During the first quarter, 17 of the top 20 programs of Mexico's broadcast television were produced and transmitted by Televisa. These includes telenovelas, dramas, newscast and comedies.

Televisa's top 3 programs during the first quarter included Vencer el Desamor, La Rosa de Guadalupe and Imperio de Mentiras, with audiences between 36% and 62% higher than the top-rated program of our closest competitor. Through the whole week, Televisa's audience were 74% higher than those of the second largest broadcasters, while audiences at our flagship network, Las Estrellas, were 112% higher than those of our closest competitor.

During the first quarter, our main newscast had a larger audience than all other newscast on free-to-air and pay-TV networks combined. Moreover, the best program of our second network, Channel 5, has similar audiences as the flagship channel of our main competitor, demonstrating the strength of our content across all of our channels. During the first quarter, Univision's audience share continued to be well above those of our main Spanish language competitor. We believe this will help us to take advantage of the economic recovery.

Thank you, Patricio. Now let me turn the call over to Salvi.

This transcript is incomplete due to an audio issue. The following summary is not a verbatim representation and has been provided by the Company.

Thank you, Alfonso. The Cable division posted year-over-year revenue growth of 7.9% and operating segment income growth of 7.7%. Revenue growth in our Enterprise segment, which accounts for around 14% of total cable revenue, grew 14.7%, roughly twice as fast as the residential segment that increased by 7.3%. The Cable business continues to [grow at a very good pace, reaching 14.3 million] revenue generating units after adding more than 169,000 during the quarter. As we anticipated, net additions are returning to pre-pandemic levels. This is also impacted by price increases implemented last September, and continued macroeconomic weakness.

Broadband generates the strongest profit (technical difficulty)

Ladies and gentlemen, please stand by, your conference will resume momentarily.

(technical difficulty)

As I was saying, broadband generates the strongest profit contribution. So we continue to focus on selling this service to more customers across the country. We added 104,000 broadband RGUs during the quarter. Our broadband services are very competitive.

[For sixth consecutive month we have been number 1 according to Netflix ISP speed index. Regarding our voice RGUs we] continue to deliver solid results. Our voice subscribers are more than our video RGUs as we have been very successful at upselling voice services to our customers. We had 39,000 net video disconnections during the quarter largely due to customers prioritizing broadband services. Some of our clients are looking to reduce their monthly bills. As the economy recovers, [we would expect a better performance on our video subscriptions, as most of them have to kept their broadband service with us.]

Please stand by, your conference call will remain momentarily.

(technical difficulty)

As I was saying, on the Enterprise front, we are making very good progress [with the project Red Jalisco. We are on track for completing the project during the second half of the year. As a reminder, Red Jalisco is a contract with the Government of the State of Jalisco, by which we are building certain infrastructure that will be owned by the State. Leveraging on this project,] we are expanding our residential networks to areas we currently do not cover. We just began offering services in some neighborhoods of Guadalajara and we expect to cover most of the city over the coming months.

Our plan for 2021 is to build 2 million new homes passed, the majority of them will be located in markets where we currently do not provide services

In these greenfield areas, we are deploying fiber-to-home. We are convinced that the expansion to selected location makes a lot of sense or izzi. Since our brands have national recognition, [we have attractive exclusive content, and we provide high-quality broadband] services. Our offer is very competitive, and we believe it will be successful in these new markets where there are currently many subscribers in networks of inferior quality than ours.

Considering such expansion, our Cable CapEx for 2021 is projected to be at around $850 million. The $200 million CapEx increase compared to 2020 is fully explained by the expansion of our footprint by 2 million homes passed in such relevant markets that I just referred.

Thank you, Salvi. Now let me turn the call over to Alex Penna, CEO of Sky.

End of non-verbatim summary.

Thank you, Alfonso. Year-over-year, revenues at Sky Mexico were up 4.1% during the quarter, but operating segment income fell by 3.6% driven by the amortization of certain sporting events. Sky experienced solid growth, adding 10,000 video RGUs during the quarter, mostly driven by bundles with our Blue Telecom broadband service.

On the broadband side, we added 32,000 RGUs during the quarter, reaching a total of 698,000 broadband RGUs. In the aggregate, for the 2 services, we closed the quarter with approximately 8.2 million RGUs. During the quarter, we launched our MVNO at Sky, called blue Telecomm Cel, which we expect to be another relevant revenue growth driver in the medium term.

Also, we launched our Sky Sports package, which is a prepaid offer with exclusive sports content such as the Spanish League, the English Premier League and many other key sports properties. Sky Sports also includes all free-to-air channels and Televisa's suite of pay TV channels.

Thank you, Alex. Before we close, Bernardo and I want to reiterate our excitement regarding the combination with our long-term partner, Univision, to create a new global company that, as I'm sure you know, will be called Televisa-Univision. We have finally achieved our shared vision of creating the world's premier Spanish language media company. We firmly believe this is the ideal opportunity to generate value for all our shareholders.

With the largest library of Spanish language owned content and intellectual property worldwide, as well as unmatched production capabilities to power our leading television, digital and specialty streaming platforms, Televisa-Univision will have a strong foundation to successfully accelerate its digital transformation strategy. This combination creates a larger and stronger company to compete in an exciting and challenging media landscape increasingly defined by transformative technology and evolving consumer trends.

As we remain its largest shareholder with a 45% equity stake upon closing the transaction, Televisa will continue to capture the upside from the significant growth potential of the combined company. This transaction unifies the 2 largest Spanish language markets in the world, the U.S. and Mexico. In addition, our content can be monetized as we expand our presence to serve the large and growing Spanish language audience around the world. This unpenetrated market represents close to 600 million people and an aggregate GDP of $7 trillion, of which 50% comes from Mexico and the U.S. Hispanic market.

Televisa-Univision will deliver even better entertainment experiences to our valued customers as to the new customers on a global scale. We couldn't be more excited about the opportunity ahead, and we look forward to updating you on our progress. After announcing the combination, there has been value creation of almost $2 billion for Televisa shareholders, as we believe there has been a mark-to-market our stake in Univision and the $3.3 billion that we will receive from this transaction.

On top of this, we view 2 significant sources of value creation for Televisa. First, our leading pure-play telecom business with sizable operations, a stronger balance sheet and materially lower exposure to the U.S. dollar. Our best-in-class high-speed Internet networks and content distribution platforms have revenue and EBITDA of over $3.5 billion and $1.3 billion, respectively.

These operations also have robust long-term growth outlook given Mexico's relatively low broadband penetration at 60% of homes. These asset appears to be trading at a discount of around 40% to the 10x EBITDA multiple of U.S. cable companies. We believe such a deep discount is not supported by fundamentals.

Second, the Televisa-Univision will have a strong growth outlook and solid free cash flow profile to reduce leverage relatively quickly. Clearly, our new partners, SoftBank and Google, did not invest in Televisa-Univision assuming its equity value will remain at $6 billion in the near future. Most likely, they envision an investment that will multiply over the coming years, driven by digital transformation as we aim to.

Before we move to questions and answers, as we have announced, our friend Salvi Folch will be leaving us after many, many years of dedication and hard work at Grupo Televisa. He has told us that he needs a well-deserved break. His contributions and insight have always been great for us. Thank you, Salvi. We really appreciate your outstanding contributions to Televisa. Salvi will remain as a member of the Board of Televisa. Salvi, you will always be missed.

If I may, Alfonso, before we close, I would like to thank you for your kind words. I have worked at Televisa for the last 21 years, and it has been a terrific experience. I am very grateful to Emilio, Bernardo, to my colleagues, but especially to you, Alfonso. You have been my boss during my entire career in Televisa, and I want to thank all your support and lessons taught throughout all these years. You have been a great tutor and a better friend. I am convinced that great things are coming for Televisa in general and for izzi in particular.

izzi is in great hands. Pepe Antonio has outstanding credentials, and I am sure that together with the great management team in place, he will deliver strong results. I wish him all the best on his new responsibilities. I would also like to take this opportunity to thank the investor and analyst community for their continuous trust and support. Thanks.

Thank you, Salvi. Also, I mean as previously announced, José Antonio González will take over as CEO of Cable from May 1. Now we are ready to take your questions.

(Operator Instructions) First question comes from Arturo Langa with Itau.

Two questions. My first question is regarding your opinion, your thoughts maybe on potential of change in regulation in Mexico with regards to the amount of content mostly produced nationally for OTT platforms. I believe it's 30%, the proposal. And if you have any readings or any thoughts on how that could benefit or not the new Univision-Televisa business or the Content business.

My second question, and I think this was maybe cut off, but Salvi made some comments regarding the opening of the economy and what that read-through has for Cable and maybe prices. I missed that, so if Salvi could repeat that. And then just lastly also, I would like to thank Salvi and my best wishes going forward, and thanks for all the help during these last years.

Thank you, Arturo, for your question. As to the first one, we understand that there are basically 2 proposals in terms of modifying, or new laws before Congress that have to do with local content. We don't know whether the Senate has started the formal deliberations as to those laws. Of course, as Televisa, we would like to see more local content being produced in our country.

As a result of the merger, of the combination of Televisa and Univision, we expect, considering that we have the content engine in Mexico and we can produce high-quality content very attractively in terms of costs and efficiencies, we believe that we will be producing more in Mexico as well as in other parts, but more in Mexico specifically.

So we're not aware, as I mentioned before, about the discussions in the Senate. So we want to wait and see how the outcome of that ends up being. But of course, we'd love to see more production in Mexico.

Thank you, Arturo. Regarding the second question, I don't know exactly where it did cut off. But what I mentioned is that there was deceleration on the net additions during the first quarter that we had anticipated. So we're coming back to pre-pandemic levels. Also, we have to take into account that we increased prices last September. So there's an effect there of people trying to cut some of their expenses.

(technical difficulty)

We will see better trends, especially on video where we have been having some quarters with negative net additions.

Our next question comes from Carlos Legarreta with GBM.

My question is on Cable. Particularly, Salvi, what has changed in the outlook of the business that you are now choosing to be so bold in the footprint expansion? And also, would it make sense to partner with a global player like you did in the Content side?

Please stand by.

(technical difficulty)

Can we go ahead?

Yes.

So Carlos, thank you for your question. I don't know where I left it or what you could hear about it, but I was saying that basically, we're focusing on areas where we feel comfortable, where we can be very competitive, especially where the incumbent or the existing operators have underinvested. And we're planning to pass 2 million new homes this year. We believe that we have a very solid brand. As I was mentioning, competitive offers, good service, content exclusivities. And that will allow us to gain market share in those areas.

So we believe that we're also looking at very good results over the investment, and it's the right time of doing this. For example, in Guadalajara, we are expanding our coverage as a result of our participation in Red Jalisco, which allows us to expand our offering to the residential areas of that city. So I think it's an opportunity for us. We have been extremely selective in terms of the places where we want to expand into and using our strengths and using the weaknesses of the participants, we believe that these investments will be very good for us. And Salvi can expand on that.

Yes, Carlos. I would only add to what Alfonso said that broadband penetration in Mexico continues to be low and there is a good pathway for growth. There are also many subscribers still using DSL or still using some networks that are inferior to what we can deliver. We have advertising at a national level. We are a well-known brand. We have been growing at a very good pace. But sometimes penetration in some of our markets, the levels that we have reached, are relatively high and we do see that there are opportunities in other markets.

As Alfonso pointed out, we are being very selective. We are going to determine where it makes sense and where do we have the best elements to succeed on gaining good penetration levels. And that's how we are deciding where we will be expanding our footprint.

And as to the last part of your question, that has to do with a global partner, we never rule out any alternatives.

(Operator Instructions) Our next question is from Alejandro Gallostra with BBVA.

First one is related to the Cable business. You're maintaining a remarkable revenue growth in the Enterprise segment of your Cable operations. Could you provide more details about what is behind these growth? And also the proportion of government revenues in this line. And on the other hand, the margin in the Enterprise segment was lower this time, and it would be great to understand why.

And my second question, also related to Cable. The number of video net additions in your Cable business has been going up and down over the past several quarters, although in line with the industry. But I would like to know your thoughts about the penetration rate that pay-TV could have in Mexico, given the positive traction that streaming services are having on a stand-alone basis. And thank you very much, Salvi, for all your years of help and I wish you the best.

Alejandro, thank you for your question. I'll ask Salvi to answer it.

Thanks. Thanks, Alejandro. Thanks for your wishes to me. The question regarding what's happening on the Enterprise segment. Well, our Enterprise division has been growing faster. Starting 2019, we started improving many of the indicators of the service to try to bring additional clients. In particular, when we won this project of Red Jalisco that would allow us to have some revenues that we had in 2020 and in 2021, that has helped the business. We will conclude this contract in 2021, and we are always looking for new customers and new projects that would allow us to continue with the positive trend.

Our market share in the Enterprise segment is relatively low, and we do see that there are opportunities to bring in additional clients. It's not that much depending on government contracts. We do have some relevant government contracts, but we do not have weight on the government like other operators have. So it needs to be a diversified business in terms of subscribers.

Regarding the second question of the video RGUs. Well, the economic environment has been challenging over the last 12 months. There has been higher unemployment and there have been less disposable income for many of our customers. When customers are canceling their video service, they consistently express that they have lower income and that they need to reduce some of their expenses.

But sometimes it's surprising that when they cancel the bundle that has 3 services, and they go to 2 services, they really are not saving a lot of money, but they need to make the savings. And that's why we say those customers, we have not lost them and we will try to bring them back. -- Our bundle is very, very competitive when you put the 3 services there. If you see our loading factor, it's lower to that of our competitors. So we believe that if the economy improves, we may be able to regain some of those customers.

It's also a trend that people is changing the way they see video linear channels and they are moving into OTT offers. That's why we are also moving to be an aggregator of content, and we are offering all the applications on our newer set-top boxes. I believe that penetration of pay-TV is facing challenges in some markets. But in our country, if you see the numbers, people continues to watch pay-TV -- linear TV, sorry, and it's a great way of entertaining.

So I still think that looking at the numbers of the industry, it's not that we are seeing a general decline, but it's more specific to some of our customers. We are a postpaid product. So people have to pay the fee every month. And that's why for some of them, they have to look into alternatives, some of them go over-the-air television and some of them they just have to cut the service.

Our next question is from Maria Azevedo.

This is Maria from Santander. My question is on the M&A opportunities. Do you still see M&A opportunities in the Cable segment in Mexico? And how should we think about the future of this big cable group? Is there room for other technologies adoption? You already have some FTTH operations as well. How do you see the cable and the fiber playing out?

Maria, I mean we're now focusing on operating the companies operating izzi, growing the footprint. As we have mentioned, we're planning to expand our footprint by 2 million homes. We believe that this is a very attractive opportunity for us. So we're focusing 100% of our attention towards that, and we believe that the opportunity is there.

And I'm not showing any further questions in the queue. I will -- you may continue with any final remarks.

Well, I would like to thank everyone for joining us today. As always, feel free to contact us at any time if you have any additional questions. Thank you very much.

Thank you. And this concludes today's conference call. Thank you for your participation, and you may now disconnect. Good day.