Grupo Televisa SAB (TV) 2021 Q4 法說會逐字稿

Good morning, everyone, and welcome to Grupo Televisa's Fourth Quarter and Full-Year 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, Tamia. Good morning, everyone, and thank you for joining us. With me today are Pepe Antonio Gonzales, CEO of Cable; Luis Malvido, CEO of Sky; and Carlos Phillips, CFO of Grupo Televisa.

Before reviewing Grupo Televisa's operating and financial performance, I'm delighted to share with you some exciting news about TelevisaUnivision after effectively closing the merger on January 31. It has been almost one year since we announced the transformative combination of Televisa's media and content business with Univision to create a new company, TelevisaUnivision. This union has created the world's leading Spanish-language media and content company, a business without comparison in the global media landscape that will exclusively focus on the massive market opportunity that exists with a global Spanish-speaking audience of almost 600 million people.

We are very fortunate to have a group of amazing partners that came together to help create this unique platform and pursue our digital transformation strategy. Wade Davis, CEO of TelevisaUnivision and Founder of ForgeLight, Eric Zinterhoffer at Searchlight and Softbank, Google and Raine. Those teams have helped us a lot. In preparation for this merger, both Televisa and Univision have made significant progress transforming their businesses across all dimensions.

Both teams have built upon our brands and deep connection with our audience to deliver levels of viewership these two companies haven't seen in years. Univision's portfolio of television networks had the highest audience share since 2014 and Televisa's content performance and audience delivery in Mexico was equally impressive. Univision completely reinvented its ad sales business, and both companies experienced above-market advertising revenue growth in 2021. And most importantly, we have completely transformed our organization, strengthening our already exceptional teams.

By merging Televisa's content and media business with Univision, we have created an unprecedented platform. TelevisaUnivision now reaches over 60% of the respective television audiences in both the United States and Mexico, holding leading positions in both markets. We reach over 100 million Spanish speakers every day across television, digital, streaming and audio. We have the most prolific long-form Spanish language content engine in the industry and the most powerful Spanish language library and intellectual property.

TelevisaUnivision is already delivering results that neither company could have achieved independently. And we are just getting started. One of the most exciting things created by this historic merger is the largest ever Spanish language global streaming platform. With the assets and resources of TelevisaUnivision, we are on the cusp of launching something extraordinary.

The history, the brands, the reach and trust with our audience, the content engine and library of the combined companies have come together with two new ingredients, a massive capital commitment of several hundreds of millions of dollars for Spanish language content, multiples of what any other service spent in the language and an extreme conviction in the opportunity for the world's first large-scale streaming platform to exclusively serve the Spanish-speaking world.

As we announced on February 16, ViX, our new streaming brand, will be the first of its kind global streaming product with two very distinctive experiences. advertising video-on-demand or AVOD, and subscription video-on-demand or SVOD, all in one single app, easily accessible for everyone across all major platforms in the United States, Mexico and 19 countries across the rest of Latin America.

The benefit of having two tiers in one app is that we will be able to easily upsell our premium service to AVOD users, while SVOD subscribers will be able to enjoy these two distinctive experiences, each with its unique content proposition seamlessly. The AVOD tier ViX launches on March 31 and promises our users of linear-like experience that includes live news and sports and a significant amount of entertainment content across all genres. Available in the form of linear channels as well as video-on-demand, all advertising supported and importantly, for free.

At the same time, the SVOD tier, ViX Plus, which will launch in the second half of the year is a premium paid experience. Our mission and our promise is to deliver compelling original content, producing the Spanish language. And since this is our only focus, we want to be the Spanish-speaking world's go-to platform. Between these two experiences, ViX and ViX+, in our first year alone, we will have an unprecedented offering of more than 50,000 hours of free and paid premium content. In the subscription service specifically, we will launch at least one high-quality new movie or series every week for the entire first year.

ViX+ will feature content developed exclusively for us by some of the master storytellers of Spanish language content, including one of the industry's most respected and popular artist and producer, Salma Hayek and her production company, Ventanarosa, US superstar and an actress, Selena Gomez, Peruvian writer and literature Nobel Price winner, Mario Vargas Llosa, Spanish author Maria Duenas and Mexican Comedian, Eugenio Derbez, among many others. We are very excited about the achievements we had so far since announcing the merger and look forward to sharing with you the future success of TelevisaUnivision.

Three strategic factors lead us to believe and have confidence that we are much better positioned than other traditional media players migrating to streaming, and that will deliver on our digital transformation strategy. First, we have a sizable traditional media business, growing double digits and generating strong free cash flow to fund the launch of our global streaming platform.

Second, we have the largest Spanish language content factory in the world that can produce premium content in a cost-effective way. We also have the most powerful Spanish language library and intellectual property. And last but not least, we have a world-class executive team, and we have built one of the best streaming teams in the industry. Over the last 12 months, we far exceeded our initial growth expectations and our prospects for 2022 look equally as impressive.

On a platform basis, TelevisaUnivision's revenue for 2021 reached around $4.2 billion, representing year-on-year growth of almost 15%, while EBITDA reached more than $1.6 billion, equivalent to a year-on-year increase of approximately 11%. We expect a strong revenue growth trend to be sustainable in 2022, driven by several factors, including; one, record volume share and great upfront performances, both in Mexico and in the United States. Two, additional partnerships to launch our content on digital multichannel video program distributors. Three, the monetization of the World Cup; and four, the launch of our global streaming platform. We expect EBITDA to remain relatively stable this year as we invest in the strong foundation for our next phase of growth, including launching our global streaming platform, acquiring streaming users and delivering higher revenues.

With that, let me spend some time on milestone achievements. Last year, the Mexican economy expanded by around 5% year-over-year. The improving economic environment helped drive solid growth in our content segment as advertising activity from the private sector remained very strong throughout the year. The strategy to turn around our content segment proved to be successful, allowing us to deliver revenue and EBITDA growth of 10.2% and 11.5% year-on-year, respectively, taking us back to pre-COVID levels.

Our Cable segment also performed relatively well, and our initiatives to expand our fiber-to-the-home, FTTH footprint by 2 million homes in 2021, has already started to show initial results. On the other hand, an increase in out-of-home activities led to softer net additions of revenue-generating units or RGUs at Sky and lower prepaid recharges.

At the same time, Sky experienced elevated costs related to the high number of live sport events that were canceled in 2020, putting significant pressure on margins. All in, our full-year consolidated revenue reached MXN103.5 billion, representing year-on-year growth of 6.3%, while operating segment income reached MXN43.5 billion, equivalent to a year-on-year increase of 7.3%.

Turning to our fourth quarter results. Consolidated revenue reached MXN28.8 billion, representing a year-on-year increase of 3.7%, while operating segment income reached MXN12.3 billion, equivalent to a year-on-year growth of 3.1%. Bernardo and I are pleased to see that most of our assets delivered solid operating performance in 2021. We are also confident about the opportunities to keep growing in 2022.

Now let me address the fourth quarter financial results in our content division. Advertising revenue increased by 7.2% as the economic rebound has been driving up marketing activity and advertising spending across the private sector. Most of our clients are looking to position their brands, products and services in front of their consumers and Televisa's solid ratings during the fourth quarter, particularly on prime time, created a great advantage. During the fourth quarter, royalties received from Univision of $110 million were relatively flat year-on-year. Univision's solid operating performance during the fourth quarter was particularly offset by tough comps, given heavy political and ad spending in the same period of 2020.

In sum, during the quarter, content revenue increased by 4%, while operating segment income grew by 1.3%. Our content margin contracted to 47.1% due to the difficult comp associated with more production of content. In 2020, the COVID-19 lockdowns led us to have lower content production costs as live programs such as sporting events were cancelled, and we broadcasted several reruns.

Moving on to the full year. Content revenue grew up by 10.2% year-on-year, mainly driven by an increase in advertising sales of 17.2%. In 2021, our advertising sales reached MXN19.2 billion, and were close to pre-pandemic levels. Operating segment income in our content business was up 11.5% compared to 2020, confining into a 38.3% margin. This is an increase of 40 basis points from 2020 and the highest margin since 2016.

Regarding our upfront, I am very pleased to say that our negotiations with our customers have successfully concluded. We expect advertising deposits to grow by around 13% year-on-year, representing the best upfront performance on Televisa's history. We are optimistic that this will help sustain advertising revenue growth at a solid pace in 2022.

During 2021, our main newscast had great audiences, and we're very proud of this achievement. In the US, Univision's ratings on linear television were the only ones to grow year-on-year during 2021, allowing it to increase its overall portfolio share with Spanish language and total television in the United States. We're very proud to report that the strength of Univision's ratings has been driven by Televisa content, which currently occupies most of the Univision's primetime programming grid. This audience metrics in Mexico and the United States are evident that Televisa's strategy to revamp its content production, which was implemented a couple of years ago, has been very successful.

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

Thank you very much, Alfonso.

During the fourth quarter of 2021, our Cable segment saw an important turnaround in operating metrics. It was the strongest quarter in the year in net adds, coupled with a solid financial performance and strong profitability. In net adds, the fourth quarter closed with 201,000 fixed revenue-generating units, or RGUs, and 17,000 mobile RGUs. It was the strongest quarter of 2021 and the highest since the second quarter of 2019, [excluding] (corrected by company after the call) the pandemic quarters. The year closed with 14.6 million RGUs. The result was largely driven by both the realignment of some of our flagship products, as well as the homes passed expansion plan we implemented last year.

Our Cable business keeps growing due to our higher levels of sales and an improved product mix, which also brings a higher average revenue per user. In video, we turned it around and had the first positive quarter since the second quarter of 2019, [excluding] (corrected by company after the call) the pandemic quarters. We reached an inflection point and added 11,000 video RGUs during the quarter, thanks to our improved product mix from the product realignment process.

Today, 75% of sales are triple play and the strengthening of our retention programs. In broadband, we added 58,000 RGUs, the second strongest quarter of the year for a total of 5.7 million RGUs. Broadband continues to be the highest margin service, so we will continue to enhance its product offering.

Now for the financial metrics. During the fourth quarter, our Cable segment delivered year-on-year revenue growth of 4%, while operating segment income increased 8.3%. Our residential segment revenue grew 4.8%, while our enterprise segment, which accounts for around 15% of total Cable revenue increased 10.4%, mainly due to the timing of revenue recognition.

For the full year, revenue growth on our Cable segment was 5.8%, and operating segment income grew 7.3%, reaching a margin of 42.2%. We expect that the full impact of our strong operating results should materialize in the coming quarters. During 2021, capital expenditures reached $855 million, equivalent to 36.1% of sales. These investments allowed us to successfully achieve our plan to passed 2 million homes, ending the year with 17.8 million homes passed, of which more than 65 are passed by either fiber-to-the-node or fiber-to-the-home. By the end of the fourth quarter, we have successfully launched fiber-to-the-home services in the cities of Guadalajara, Toluca, Durango, Mazatlan and recently, Tepic. This will help us to accelerate RGU net adds from 2022 onwards.

Before turning the call back to Alfonso, let me say that we are convinced that the expansion to selective location makes a lot of sense for izzi. We have a nationally recognized brand, exclusive content and high-quality service with competitive offers. Thank you very much.

Thank you, Pepe Antonio.

Before turning the call to Luis Malvido, let me remind you that he was appointed CEO of Sky since the beginning of the year. Alex Penna, who was a great executive for us, decided to retire and Luis took over. Luis is a seasoned executive with over 25 years holding CEO roles, mainly in the telco sector. He has led publicly listed and private companies across the geographies, including Latin America and Central Europe.

Before joining Sky, he was Chairman and CEO of Aerolineas Argentinas. Previously, he worked for over three decades at the Telefonica Group, where he held the position of Executive Director of HISPAM South. Luis also spent five years as Chairman and CEO at Telefonica O2 Czech Republic, two years as CEO of Telefonica's wireless operation in Brazil, three years as President and CEO of Telefonica Venezuela and over six years as Vice Chairman and CEO of Telefonica Moviles de Argentina.

Having said that, let me turn the call over to Luis.

Thank you very much, Alfonso.

At Sky, revenue declined by 4.4% year-on-year during the fourth quarter, mainly driven by lower recharges of prepaid packages due to the decline in home confining related to the pandemic. Operating segment income fell by 13.9% due to the amortization of certain sporting events and lower revenues. Sky had 73,000 RGUs disconnections, mainly driven by the loss of 80,000 video subs during the quarter.

On the broadband side, we added 5,000 RGUs during the quarter, reaching a total of 727,000 customers. The material slowdown is in broadband, net adds is mostly related to the financial difficulties of Altan, our house network and the expected delays in the coverage expansion. In the aggregate, including our MVNO service, which added 3,000 RGUs during the quarter, we closed with approximately 8.2 million RGUs. For the full year, revenues of Sky declined 0.5%, while operating segment income fell by 6.9%, driven by, as I said, an increase in the amortization of certain sporting events, resulting in a margin of 38.6%.

And now before turning back to Alfonso, I want to share more color regarding Sky OpEx structure over the coming years. Excluding 2022, when we will have a non-recurring cost of around $50 million related to the transmission rights and production of FIFA World Cup, Sky operating costs and expenses should be similar to those in 2021 in real terms.

Thank you, Luis. Welcome to the team.

Thank you.

Yes. Moving on, consolidated CapEx were $1.15 billion during 2021, which was slightly lower than our guidance. For 2022, our CapEx target of $860 million includes $620 million in Cable to pass 700,000 homes with fiber, increase our subscriber base and support growth. $200 million deployed in Sky and $40 million in our other businesses.

Finally, I'm happy to report that our Board of Directors approved the payment of our regular dividend in 2022. This will be presented for approval at our Annual Shareholders Meeting.

To wrap up, 2021 marked a historic moment for Grupo Televisa and our industry as we announced the merger of our content and production assets with Univision, created an unprecedented business in the global media landscape. Over the past year, both companies have transformed themselves reaching levels of financial performance and audience resonance that has not been seen for many years.

We have hit the ground running in 2022. The power and momentum of our core business is truly unique and will be a springboard for the upcoming launch of a preeminent Spanish language streaming platform, ViX. At our Cable segment, we have laid the groundwork to achieve sustainable growth in the medium term by accelerating the expansion of our FTTH footprint. This should allow us to remain the leading high-speed Internet service provider in Mexico.

2022 will continue to be a year with significant opportunities for Grupo Televisa, and we will remain focused on delivering solid results for all our stakeholders. Bernardo and I are very optimistic about 2022. First, we will continue to capture the upside from the significant growth potential of TelevisaUnivision by remaining its largest shareholder with an equity stake of approximately 45%. And second, connectivity is very important in every household, and we are benefiting from this trend. So, we will continue to invest and grow in our broadband operations.

Now, we're ready to take your questions.

(Operator Instructions) Your first question comes from the line of Marcelo Santos with J.P. Morgan.

I have two. The first one is, if you could please comment a bit on the performance of blim in Mexico during 2021. Anything you could share would be very interesting. And the second question is, does the upfront already includes advertising on the AVOD platform or if that is purely a traditional media?

Yes. Thank you, Marcelo. As to blim, it's a very different platform than what ViX will be. blim is basically an SVOD platform. However, we launched last year an AVOD version. And it's a good precursor to what ViX will be. We touched the waters in Mexico through blim to look at that market. blim has been able to deliver more than a million subscribers, which will be transferred to ViX. And in terms of users of the AVOD platform, it's an incipient platform since we launched it last year. And I could say that it has around 4 million users. This platform has delivered exceptional engagement by the users. So, we are very happy to see those results, as I have been mentioning, ViX is another platform, both ViX and ViX+. The AVOD and the SVOD platforms will be something very different than what we or Univision launched in the past. In terms of the upfront, it did include sales of advertising on the AVOD platform on ViX.

Our next question comes from the line of Alejandro Gallostra with BBVA.

The first one is related to the Cable business. You just provided the CapEx guidance for the year. And we can see that the CapEx for the Cable business is substantially lower than the amount that you spent in 2021 and more similar to what we've seen in 2020. So could you please outline your FTTH expansion plans for the next two years or three years? Is this expansion will continue to be in new regions and how many homes you plan to pass? And what would be the overall CapEx requirements to meet those goals? That would be my first question.

Yes. Thank you, Alejandro. We will continue to invest in our Cable segment, especially on the FTTH front. As I mentioned before, we have a full plan and I'll ask Pepe Toño to go into that. However, for this year, we're optimizing our CapEx. And well, Pepe Toño, can share with us the expansion plan and where we are investing, please?

Yes. Thank you, Alfonso. The first thing I would say is that CapEx in absolute terms for 2022 is basically the same as it was in the prior years, except in 2021. 2021 was an extraordinary year, and it was based on a very ambitious expansion plan of 2 million homes. This surge in investment was needed. This lumpsum surge in investment was needed because we entered very large metropolitan areas. Guadalajara, which is either the second or the third metropolitan region in Mexico and Toluca, which is also one of the top five.

However, one of the things I want to say is that with this investment, izzi covers nine out of the 10 biggest cities in Mexico City, which account for over half of the GDP of the country. And more importantly, we cover the three largest with either FTTH or fiber-to-the-home. So, we are going back to our stable level of CapEx investment. Every few years, not so often, we have extraordinary years like last year or like '15 or '16.

The second thing is what Alfonso mentioned, we've been working on improving and making our construction parameters more efficient. That way we will continue our homes passed expansion with higher efficiency and less capital intensity. This will allow us to put our resources in other areas. Moving forward, we're going to continue to be laser focused on upgrading our network as we have in the past. And we will be opportunistic on how we do in choosing the places and the areas of expanding our footprint based on competition, consumer consumption capacity, potential penetration, ARPUs, et cetera.

We want to do this rather than giving general statements about increasing or doubling the size of our company. Relative to sales, however, we believe it is likely that we will see CapEx declining from the levels we've seen in the mid-to high 20s in 2022 to low to mid-20s in the medium term. So, I think with this, we have a good case. We have a nationally recognized brand with a good name that provides us with good footing to continue to grow in the future.

Yes. That's good explanation. And in terms of homes passed, you should probably expect a lower pace compared to 2 million homes passed this year? Is that correct?

Absolutely. We are expecting to do 700,000, which is not a small number either. The last year was, as I said, an extraordinary year because we entered very large metropolitan areas in this past year, very successfully, I would say. But 700,000 is what we're projecting for this year.

Okay. Great. And my second question also related to Cable. I would like to hear from you about the dynamics that you're experiencing in new regions that you've been entering with FTTH in the last few quarters last year. In terms of competition, pricing, ARPUs, transition rates, that would be very helpful.

Well, I mean, I think the competitive landscape of the cable market has been changing in the last few years. It has become a lot more competitive. So, we have to be very efficient and very competitive in our products. In the last quarter, one of the reasons we had a significant turnaround in our sales and our increasing net adds was because we repackaged our products and we repackaged, especially our flagship products to make it more competitive, vis-a-vis, the competition. Having national coverage means that in some places, we compete against one company and in other places, we compete with another. In some places, we compete against both or three of the companies. So, we have to be very regionally oriented to try to get the best in each of the markets. And I think the story of the fourth quarter is perfectly sustainable. I would say that for the first time in over a year did we have positive net adds in video, which is a very good story. And most of our sales are triple play. So the product mix is allowing us to increase ARPUs solidly and sustainably.

Our next question comes from the line of Gordon Lee with BTG.

Congratulations on the closing of the transaction. A couple of questions. The first one, during the quarter, in the press release, you discussed a couple of, I guess, were reassessments from the tax standpoint for previous years. I was wondering if you could give us maybe a little sense of the magnitude and more importantly, whether that has already been taken care of, or whether some of this will spill over into 2022 as well?

And the second question is, with the transaction having been closed with the $3 billion partial monetization of your content business likely to hit your balance sheet this quarter and the fact that TelevisaUnivision will really fund its own investments with its own internal cash flows, could we expect that the Televisa level to maybe see more cash being returned to shareholders, either via a step-up in the buyback or maybe beyond this year an increase in ordinary dividends?

Thank you, Gordon. As to your second question, we're going to be opportunistic about deployment of capital. Of course, we will invest, as we have been mentioning in FTTH through izzi. That's a priority of ours. And then we will deleverage. We will be paying down debt also opportunistically. So, you will see more of that happening very soon. Those are the two priorities. But in terms of buybacks, we have been buying stock and we will continue to buy stock. And those are our priorities.

As to your first question, I'll ask Carlos Phillips to answer it.

Gordon, regarding your two questions, I guess you're referring to the changes in income taxes for the quarter. And as you mentioned, these were adjustments that were made for. In one case, there was income tax from prior years, where there was an assessment from the tax authority, and we had to do an adjustment. And the second one was a partial write-off of the first income tax that we had from 2014. So both of those items, if those are the ones that you were referring to are one-offs, that we wouldn't expect to continue in the future

Our next question comes from the line of Leonardo Olmos with UBS.

First question, I have two quick follow-up questions. The first one is about Cable. You discussed homes passed in a previous question. And my question is now regarding homes connected. How should we think about homes connected into 2022? Can we expect over 50,000 net adds per quarter again?

Pepe Toño?

I think what we see and what we expect is to continue the trend we had in the fourth quarter. So, we're seeing an acceleration from quarters two and three and this should be sustainable. And this should be steady with a gradual acceleration as has been happening. What we are seeing, as I said, is the changing on product mix. So, we should expect the speed to be gradually accelerating from the fourth quarter, but at that level. Was that clear, Leonardo?

Very clear. Good news. My second question is regarding streaming. So, you mentioned that you had around 1 million subs in blim. They will all be switched to the advertising video-on-demand, so the regular ViX. Can you provide any type of metrics that we could think and then track regarding the subscription video on-demand products? Meaning, is there any way we can think of how many subscribers you potentially think you can have in the ViX+?

Yes. Well, of course, the total addressable market is huge. It's 600 million people that speak Spanish in the world. That's the addressable market. Of course, we're going to focus, as I mentioned before, our attention first on Mexico and the United States Hispanic market and after that, the Latin American markets and then other places such as Spain. So that's the total addressable market that we will approach. It's a $7 trillion GDP, as I have mentioned in the past. And the good thing is that $3.5 trillion of those $7 trillion are just the GDP associated with the US Hispanic market and Mexico's GDP.

So, we believe that we have the strength to capture those subscribers. As I mentioned, we're launching the AVOD products so we can upscale and then we can upsell the subscription product. Both of them are going to be very attractive. Our main focus, our mission is to deliver and to have a platform that delivers the most important content in the Spanish-speaking world and the most content in Spanish in the world. Also, the most soccer games of the Mexican Soccer League and other important relevant tournaments. So, we will have more soccer than any other platform in the world. So, we believe that. I mean what we're seeing is really exciting. Of course, we'll start to announce the number of subscribers once we launched the platform, ViX+. So that will happen in the second half of the year.

Very good. Just a quick follow-up. About the advertisers, you're having, upfront, very successful for 2022. Is that transferable to the advertising video-on-demand? Are you having conversations with advertisers to fund this type of new product? How should we think about the advertising being transferred to ViX?

Yes. Well, that's a very good question. I think the upfront was the best upfront in the recent history of Televisa, as I mentioned. I think that the upfront had to do with several factors. The first one, better economic activity. The second is that we're experiencing fantastic ratings and audience growth in our flagship channel and also on Channel 5, but especially on prime time, which is where you sell it at higher rates.

Third, I would say that we have a revamped sales team, sales organization, and that's helping a lot. And we're being much more efficient in terms of selling advertising. I could say, fourth, that we're focusing on selling the unique reach that Televisa can deliver to our clients, to our advertising partners. And fifth, getting to your question, we have included the AVOD product, which looks amazing and is going to be really successful. So clients are now focusing on AVOD. I would say that it's the same in the United States, where the ViX product was included in the upfront sale and we gained traction, and it's looking great as well in terms of advertising sales.

Sounds great. Happy Friday for everyone.

Our next question comes from the line of Soomit Datta with New Street Research

I have two or three quick questions, please. Firstly, on PrendeTV, can you give any sense as to the sort of size of the fan subscriber base or the user base there? I think the narrative has been very favorable, but it would be great to get a sense as to how that is scaling.

Secondly, just on the SVOD launch, I think, on the Univision call, I may have misheard this, but I thought Wade mentioned early Q3 launch. Can I just kind of clarify whether that was right or not?

And then thirdly, please, just a bit of detail on the P&L from Q4, please. I think the other operating line, there was a gain, obviously, which was significant. But if we strip that out, there was quite a large negative in there for this quarter, looks to be kind of financial advisory, legal fees, some merger costs as well. I think the corporate expense line was a bit higher as well. So it would be great just to get a sense as to what exactly was buried in that number, seemed a fraction higher than it would normally be.

Yes. Great question, Soomit, as always. As to your first question, that has to do with Prende, I think it's important to mention that our strategy and progress have been hugely benefited by having PrendeTV in the market for three quarters of 2021. With Prende in the market, we were able to put a full distribution in place across all platforms, key MVPDs and major key manufacturers and get those partnerships up and running. So, that has been great because it has helped us a lot in terms of our launch of ViX. With Prende live, we were able to test different content and programming strategies and also refine the relationship between television and the streaming platform. And we were also able to take Prende through the '21-'22 upfront, as I mentioned before, and establish premium pricing and build a significant base of advertisers.

So they looked at Prende and, of course, they saw the attractiveness of it. And so now we have a very good base of advertisers to bring into ViX. And so we have activated 45% of our linear advertisers on PrendeTV platform. And this is great as we prepare to transition them into ViX. So, I could say in general that Prende was a huge benefit for us in getting a head start and refining our strategy. I could say the same thing as to the AVOD product that we launched in Mexico with blim last year. And so that is a base that will transition into ViX. As to your second question, as Wade mentioned, the launch will be in early Q3.

As to your third question, I'll ask Carlos to answer it, please.

Yes. As you mentioned, there were a couple of movements that were interesting in the other income line. As you mentioned, there was a positive movement, which was related to our sale of OCESA, which was a positive number. But that was offset partially because there were also other gains that we had in the previous year, including the sale of our radio business and the reimbursement of a legal outcome that we had with another company and so those kind of match.

And in terms of the corporate expense, you're right. I mean we did have some non-recurring increases in legal and advisory expenses. We also had, because of the transaction with Univision and the restructuring and separation process, we had a little bit slightly higher than normal severance costs. Those were in the content business. And we also had a little bit more in our Cable business. And then there's another non-recurring corporate expense in that line, which is related to one of the previous questions that was about income taxes. Given those assessments, we also had an increase in surcharges related to those income taxes from a couple of years before. But again, most of these are non-recurring in nature.

Just a very quick follow-up. Putting that all together, do we think that line will kind of normalize from Q1? Or is there a one-off I guess, as this deal closes, there is a bit more to come?

Yes. No. It should normalize in the sense that we're not going to have another sale of OCESA in the future. But again, this one is subject to, for example, once now that we have the closing of the transaction, you would expect to have a gain, for example, in that line because of the content merger. And we still would have a few other legal and advisory items that would be non-recurring for this quarter, probably. But yes, we would expect it to normalize. Most of these changes were non-recurring.

Our next question comes from the line of Matthew Harrigan with Benchmark Company.

I was curious if you could talk a little bit about your venture capital business since you're one of the top five participants in Mexico now. I know most of it is funded through on-air advertising. And clearly, ViX and the involvement of Google and SoftBank help you there perceptually. I know that isn't that large an item at this point, but it does feel like it's an interesting area that sometimes doesn't get a lot of discussion.

Yes. Matthew, great question. And it's something that we feel really proud about, especially in Mexico, and now we're taking this to the United States, Univision. Basically, media for equity, this model implies exchanging available advertising times lots for an equity stake in high-growth startups or business-to-consumer companies that have not had the opportunity to advertise on free-to-air television and other platforms of ours. We select companies based on their potential, basically and that are in early stages of development, usually companies that could not afford strong advertising campaigns on free-to-air television, on paid television and other platforms. But I would certainly appreciate advertising deployment to position their products, to position their brands, to position their companies.

So, we see this as a great opportunity. First of all, to show the market, the relevance of free-to-air television, to create and position a brand as top of mind and also, I would say, to optimize the use of our available inventory. And of course, this gives us the opportunity to invest in companies with high-growth potential without any type of cash outflow. In recent stories of success using this mechanism, we have invested in Kavak, we have invested in Rappi, in Uala, in Clip. And we're doing this basically together hand-in-hand with SoftBank and in certain other cases with General Atlantic as a partner. They are the ones that identified opportunities and, of course, do extensive due diligence, extensive analysis as to the opportunities in the industries, the clients, et cetera.

So far, we have closed eight investments in seven companies, four of which are unicorns. And that's why we feel proud of the companies we have identified early on. And this has been great. As I mentioned, we're taking this to the United States as well, this model, and we're starting to close deals through Univision as well. So, this will continue to grow. We have a pipeline of around 20 new investments.

Of course, we're very selective and careful about those. As I mentioned, we always do those hand-in-hand with SoftBank, General Atlantic and now with others. So, we'll be very strict and careful about those. But it's basically using our unsold inventory for purposes of promoting these start-ups, these new companies. So up to now, it has been amazing to be able to invest in Kavak, Rappi, Uala, Clip and others. I mean, as I mentioned, four of these have become unicorns. So, we're very happy about this venture.

Our next question comes from the line of Alejandro Chavelas with Credit Suisse.

Congratulations on the results. Most of my questions have been asked already. Perhaps just a little bit more color on Sky. There was obviously an important loss of subs in video. Perhaps you could tell us what are you doing about it? Do you think perhaps there is a possibility of reducing prices, premium pricing to keep some subscribers? And what are your targets for 2022 in this business? What are you aiming to achieve?

Yes. I think what happened in the case of Sky of subscribers in that platform, we had challenging quarters as the economy recovered, but mostly as people left their homes. And so the recharge rate on our VeTV product was lower than we experienced when, I mean, when we had the lockups. So basically we believe that Sky is a fantastic company. It has a fantastic brand in Mexico. It has a great team throughout all the countries. And it has also a great product, especially through VeTV, which is a prepaid product that is based on recharges. I think the Sky product is based on the strength of the content that it has, specifically of the soccer content that we have been able to secure there. So, we believe that it's a company that of course, is challenged, but it's a company that is going to be there for the long run and it has a great market.

Right. So what you're saying is that perhaps the disconnections were because of people that didn't do recharges for VeTV rather than losing, let's say, more premium subscribers?

Yes. It was focused basically on recharges on a lower recharge rate.

Right. So going forward, we should expect at least a normalization in this line.

That is correct.

Great. Congratulations again.

Thank you.

Our next question comes from the line of Carlos Legarreta with GBM

Just a couple of questions on Cable. First, I was wondering if you could talk about why the margin in the Cable segment was so high during this quarter? I mean, that was a positive surprise for sure. And secondly, how should we think about OpEx in the segment for 2022?

Pepe Toño?

Thank you very much, Alfonso. Thank you very much, Carlos, for the question. I think the margin for [the fourth quarter] (added by the company after the call) and the expansion in the margin for the quarter is explained by two areas. And one, as I said in my previous interventions, there was a significant turnaround in net adds in sales. So, that increased our revenue. But we're also having some incipient results on cost containment measures that we're doing. We're improving our procurement practices and containing our general OpEx. So, all said, the combination of these two has quite increased the margin.

For us, procurement practices, very competitive bidding makes a big difference because our capital expenditures are so high, not only in the expansion part, but also for the operating part for equipment in the homes, etcetera. So, we have instituted some better procurement practices in bidding processes that have allowed us to contain some of the increases in costs. So that's why the margins have increased.

Regarding to OpEx, the budget for 2022 that we have proposed, we contained OpEx increases more or less to zero, besides the fact the increases that we have to have in salaries, etcetera, OpEx was constrained to not have any increases and to absorb the growth with our existing number of workers, etcetera. So, we hope and expect this profitability trend to stay the same and gradually improve.

So that should be, sorry, flat in nominal terms, real terms, just to understand better?

Well, we have salary increases. So I mean, for sure, it's going to be flat in real terms. But the way we targeted the budget was we tried to make it flat in nominal terms other than salaries and expenditures that have to do with that, yes, and expenses that have to increase. There's nothing we can do about salaries and other extraordinary expenses like electricity or all the other services that we buy. But on the discretionary OpEx, let's call it that, we put it flat in nominal terms. But if you look at it, you will see some increase, as I think is normal.

Our last question comes from the line of Fred Mendes with Bank of America.

I have two questions, which are kind of follow-ups as well. The first one on Cable. You mentioned that two reasons for the improvement in margin. But I was also assuming that as you extend your FTTH coverage, I'm assuming that you charge a little bit more with this, let's say, higher quality products, then you will have higher margins. So just wondering if there was no impact on this quarter from this high FTTH representation and the read through to 2022. That will be the first question.

And then the second question, back to the Content segment, very strong, again, 10.2% year-over-year. But I mean, when I look to ViX and especially to ViX+, we understand that the type of content that you'll be doing in the platform is quite different than the content that you are producing now, especially for ViX+. So just want to confirm this, if it makes sense this line of thinking.

Can you repeat exactly what the explanation on your margin was? I didn't quite get it, what the addition was. I'm sorry about this. Yes. I'm sorry about that.

No worries. No, the point is you mentioned in the previous question two reasons why the margins on Cable were so much higher on this quarter, right? But I was assuming that as you expand your FTTH coverage with a higher-quality product, you'll be able to charge a little bit more and consequently have higher margins versus Cable. But you don't mention that as a benefit for the margin. So just wondering, it makes sense that once you roll over your FTTH, this margin should naturally increase because that's a project of higher margin. So just want to confirm.

Yes. Well, sure. Absolutely. FTTH, where we expand with FTTH, the margins are higher. So let me confirm that. But I think the results for the quarter are not quite (inaudible) for that, but we should expect, as I said, the profitability to very gradually improve as this goes on. And as our footprint in FTTH increases, our margins should increase also gradually with the corresponding CapEx that we have to do with it.

Perfect. Perfect. Clear. And then the second question about the content, in the fourth quarter as well.

Yes. I think before touching on the content, let me share with you this, the combination of Televisa and Univision is so unique that if you look at it, if you look at the prospective numbers, the core business of both Televisa and Univision, if you look at the upfronts in both countries that are historical is growing double digit. So the core itself is growing double digit, and we generate a lot of free cash flow, both in Mexico and in the United States. And this is unique for a content company such as ours, such as the combined one. Because then, using that free cash flow, we'll be able to finance the expansion into streaming. So the quarter is growing double digit. That generates a lot of free cash flow. And with that, we can invest in the future in streaming. So, that's pretty unique for a media and content company in the world.

As to content, first of all, let me touch on the experiences. We'll have, as I mentioned, ViX and ViX+. So, this will be in the first year, this year in 2022. And there, we'll have an offering of more than 50,000 hours of free and paid premium Spanish language content. This will include all genres, movies, series, live sports, as I mentioned, more specifically, soccer, live news, and of course, the current Televisa and Univision hits, as well as access to the huge library that Televisa has of top franchise content and formats from the Televisa's vault.

Going to your question in the subscription service specifically, we will launch at least one high-quality new movie or series every week for the entire first year. So as I mentioned at the beginning, ViX Plus will feature content developed exclusively for that platform. And this includes Salma Hayek and her production company, Selena Gomez. We're producing, as we mentioned, one of the best novels written by Mario Vargas Llosa. We have engaged Maria Duenas, Santiago Limon, the top Mexican Comedian, Eugenio Derbez, and many, many others that are producing content specifically for ViX+ for that platform. So, we'll see a lot of content going into ViX, into the AVOD platform. As I mentioned before, the results that we're seeing in terms of selling targeted advertising on that platform included in the upfront in both countries are great. And then on ViX+, we think that the engagement will be great and we'll be able to capture a lot of subscribers starting this year with this premium content.

Perfect. Perfect, Alfonso. Very clear.

We did have some one come into the queue. Our next question comes from the line of Guillermo.

Yes. Can you hear me?

We can.

Great. Perfect. Just a couple of questions. The first one, maybe on Cable. Given the adds and what Pepe Toño said, it seems that you had challenges this year like pushing through inflation, especially with Mexico, 6% inflation. So how comfortable are for the next year that you're going to be able to pass through at least inflation in the Cable company?

Then maybe on the second one. You were mentioning something about the use of capital and being opportunistic. So, your bonds are, most of the foreign denominated bonds are trading above par, which are the sort of expensive ones and the ones in the local currency (inaudible) is not very far away from current funding conditions. So how would you define which debt to prepay or not?

And when we take a look to the stock, especially given the quarter now that adjusting the non-recurring and the EBITDA decrease of 4%, it seems like the Televisa ROIC is close to 0. So no profitability on that part. So how do you define buying your own stock, investing at a 0% ROIC or more detail on the opportunistic definition that you are mentioning? Maybe you are expecting a structural change in the rate of the vehicle.

Maybe another question for the ViX on the series, Eugenio Derbez, and the one series each week. What's going to be the OpEx for the first year of ViX? Because we are watching Netflix, pushing out USD25 billion in OpEx, Disney USD6 billion in OpEx. So what's going to be our range in ViX, in terms of OpEx?

And just finally, on the investments, the private equity investment that you mentioned, the Kavak, Uala, etcetera. Are you doing that through a vision fund? Or are you taking an individual risk for those investments? If so, what is the targeted threshold, the IRR that you're expecting in those investments? So four points; the cable, the use of capital, the ViX OpEx and the IRR expected or any other threshold for the private equity investments.

Thank you very much, Guillermo. What we will do in the future is we're looking at our competition all the time. So it will depend on the market environment and how all of this evolves and how the country evolves. One of the things that we have done and one of the reasons that we are happy that we see a turnaround in the fourth quarter will be packaged as our products and we tailored our products regionally and depending on where the demand and the consumer acquisition power was. So, I think that we are successful, and we're going to continue to do this in the future. And depending on how the market conditions are, we'll make those decisions as we go along.

As to the repurchase of...

I mean that's part of the cable, right?

Correct. That's for the cable. That's correct.

As to the repayment of debt, I will ask Carlos to answer that question.

Yes, Guillermo, to your point, I think there's, when we say we're going to reduce debt opportunistically, I think it's a couple of features that we're looking to accomplish. As you can imagine, one of the ones that we want to address is to reduce our interest expense as much as possible. So, we'll try to focus part of the debt reduction in the part of the debt that we can reduce at par, obviously, bank debt and things like that. But as you mentioned in your question, there's a couple of other securities that we have out there that are fixed rate in pesos and dollars, some of which are peso, in particular are below par, and the dollar ones are pretty high priced.

So, I guess what we're going to be monitoring over the next quarters and months is going to be how the interest rate curve in Mexico and in the US moves, so we can do these repurchases in the most optimal way to reduce our interest charge. We also have to take into consideration the balance at which we will, in terms of currency as well as the maturity extension that we end up with. So, I think it's a complicated answer in the sense that there isn't one factor that we have to take into consideration. We have to take into consideration many, some of which are more in the market hands than ours in terms of how rates and FX move. But the idea definitely is to reduce our leverage with most of the proceeds from the transaction.

So there is no clear path between bond and stock buyback? But yes, you're going to be tactical, right?

Yes, that's correct. I mean we are going to be reducing debt, that's for sure.

Okay.

As to the OpEx of ViX, I would say that, I mean, Univision has not disclosed what that figure will be. What I can say is that we'll invest hundreds of millions of dollars this year, and those are being, as I mentioned before, financed by both synergies that have to do with the combination of Televisa and Univision and second, because, I mean, considering the free cash flow, EBITDA and free cash flow that the Televisa, Univision combination will deliver. Keep in mind that Univision paid Televisa in 2021 $417 million of royalty in terms of the program license agreement, and that will be collapsed into TelevisaUnivision on top of the synergies that I have mentioned. So, this is what I have mentioned in terms of the uniqueness of the company, in terms of growing double digits on the core business and having the free cash flow generation to finance our future, to finance streaming.

As to your question, that has to do with the media for equity deals, we don't do them through vision fund or any of those funds. We make those investments directly in the equity of those companies. Of course, I mean the IRR, it depends on the industry, depends on the company itself, depends on the stage of matureness of the company, etcetera. So I mean, it's very difficult to have one defined. And that's basically what we're doing there.

At this time, there are no further questions. Do you have any closing remarks?

Well, thank you very much for participating. We're very, very excited about the prospects of TelevisaUnivision, the launching of the streaming service, ViX and ViX+ and also about Cable and Sky. As to our other businesses, hopefully, as a result of the loosening of the restrictions that have to do with COVID, we'll see a much better result this year. So, thank you for participating. And call us if you have any additional questions.

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