Q1 2021 Grupo Televisa SAB Earnings Call

Hello. This is the operator for today's conference is scheduled to begin shortly please continue to standby and thank you for your patience.

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Okay.

Good morning, everyone and welcome to Grupo Televisa as first quarter 2021 conference call before we begin I would like to draw your attention to the press release, which explains the use of Florida can statements and applies to everything will discuss in today's call and in the earnings release I will now turn the call over to Mr.

Alfonso day, I'm glad you called Chief Executive Officer of Grupo Televisa. Please go ahead Sir.

Thank you Carmen and.

Good morning, everyone and thanks for joining us with me today on a solid for our salary for CEO of cable Alex Penna CEO of Sky Patricio Wills head of Televisa Studios, and Carlos Ferreiro, Antonio Lara corporate Vice President of Finance and administration, respectively.

It has been just over a year since COVID-19 dramatically changed.

All of US live work and indirect.

With vaccination is 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 eight on the economic present 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 four 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.

<unk> business has operated without interruption entertaining and informing our audiences and it is playing a critical growth 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 that.

<unk> hard work and creativity of our employees, but none of them on 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 two months ago, the fourth quarter of last year showed a significant improvement in trends compared to the first nine 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 needs.

All of our customers to remain connected.

Moving onto our financial results for the quarter consolidated revenue reached $23 8 billion pesos, representing a year over year growth of three 2%. While operating segment income reached nine 4 billion pesos equivalent to a year over year growth of seven <unk>.

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-19 revenue for our three combined for businesses expanded by seven 7% and operating segment income.

<unk> 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% consolidated increase in cable revenue of seven 9% and a consistent growth at sky for 1%.

Even comparing our three core businesses with the first quarter of 2019, we experienced revenue and operating segment income growth of 10, 5% and five 6% respectively.

We firmly believe this confirms the strength of our results even compared to pre COVID-19 levels.

But on another 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 us.

Consumers ahead of the expected strong economic recovery in the coming quarters, and this is especially remarkable considering.

For 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 operating in this environment than they were a year ago and they have been more active since the beginning of the year.

<unk> sector advertising revenues were very strong growing over 30% year over year on.

On the other hand government advertising revenues remained relatively flat driven by ongoing austerity initiatives.

Royalties from Univision of 96 on the $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 three 2% and for 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.

As a combined Televisa and 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 on unparalleled streaming experience for Spanish language content globally.

We are also thrilled to be joined by Softbank, GUL and the rain company as Televisa and Univision shareholders because it reflects confidence in our digital transformation strategy, our world class content production capabilities content Library and management team as we joined forces to get cash.

On the life on future growth opportunities.

It is also a privilege for us to have Eric Center call for as a partner.

<unk> is a very talented investor a solid businessmen and on amazing person.

We're also very happy about having weighted as the C. E. On 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 on 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.

So.

Thanks Alfonso.

During the first closed 17 on the top 20 for example, Mexico broadcast TV Westwood deals and transmitted by Televisa.

This includes debt Nols drama Pniewska uncommitted debt.

Televisa stop free program during the third quarter 30 day intended as a more level I'll tell you a little bit in February and then Peter.

With audiences between 36% and 62% higher at the top rated program of our closest competitor.

To the wholly Televisa audience was 74% higher than those of the second largest broadcasters while audiences. Our flagship network losses were 112 highest that those of our closest competitor.

So in the first quarter, our main new staff has the largest audience debt although newscast on.

Pleased to have on HGTV television networks combined.

Moreover, the best program of our second network channel five has cumulative audiences that the flagship channel of our main competitor demonstrating the strength of our content across all our.

During the first quarter Univision audience share continues 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, but now let me turn the call over to Sally.

Thank you all functions.

The cable division posted year over year revenue growth of seven 9% on operating segment income growth of seven 7%.

Revenue growth in our enterprise segment, which accounts for around 14% of total cable revenues grew 14, 7% roughly twice as fast as the residential segment that increased by seven 3%.

The cable business continues to work.

Revenue generating units after adding more than 169000 during the quarter.

As we anticipated net additions are reporting to pre pandemic levels.

This is also impacted by price increases implemented last September and continued macroeconomic weakness.

Broadband generates strong cash profit.

Okay.

Ladies and gentlemen, please standby your conference what Lisa on momentarily.

For me.

Alright.

We can hear you now please continue.

Okay.

As I was saying broadband generates.

Gross profit contribution so we continue to focus on selling this service to more customers across the country.

We added 104000 broadband argued used during the quarter.

Our broadband services are very competitive.

Continued to deliver solid results on.

Our voice subscribers are more than our media argued use and we have very we have been very successful at Upselling voice services to our customers.

We had 39000 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.

Please standby your conference call will remain momentarily.

Okay.

Moving to the gunman Ken can you hear US now, yes, I can hear you enel share.

Can we go ahead.

It can continue.

As I was saying on the enterprise front, we are making very good progress.

By which we are building certain infrastructure that will be on.

We are expanding our residential networks for avs, we currently do not cover.

We just began offering services in some neighborhoods of what on the Hatter.

And we expect to cover most of the city over the coming months.

Our planned for 2021 is to be able to 2 million new home 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 the home.

We are convinced that the expansion to selective location.

Makes a lot of sense for <unk> since our brand has national recognition.

On services.

Our offer is very competitive and we believe it will be successful in this new market.

Derek carbon clean many subscribers in networks of inferior.

For 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 past in such relevant market that I just prefer.

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

Thank you all for soup.

Year over year revenue that the Sky, Mexico, where for.

For a point to one percentage during the quarter.

But the operating segment income fell by three 6% driven by the amortization of certain sporting events.

Sky experience solid growth.

The <unk> thousand.

<unk> during the quarter.

Mostly driven by bundles with our Blue Telecom broadband service.

On the broadband side, we added $32000 to us during the quarter.

Reaching a total of 698000 broadband <unk>.

In the aggregate for the two services, we closed the quarter with approximately $8 2 million to yields.

During the quarter, we launched our <unk> and Sky.

God Blue Telecom sales.

Which we expect to be another relevant revenue growth driver in the medium term.

Also.

We launched 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 Syllabuses suite.

Good day read channels.

Thank you Alex.

Before we close but another one I want to reiterate our excitement regarding the combination with our long term partner Univision to create a new global company.

I'm sure you know will be called Televisa and Univision.

We have finally achieved our share a vision of creating the world's Premier Spanish language media companies.

We firmly believe this is the ideal opportunity to generate value for all our shareholders.

With the largest library of Spanish language on content and intellectual property worldwide as well as unmatched production capabilities to power, our leading television digital and especially streaming platforms Televisa and Univision, we will have a strong foundation to successfully acts.

Salary 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 two 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.

And penetrated market represents close to 600 million people and an aggregate GDP of seven trillion.

Of which 50% comes from Mexico, and the U S. Hispanic market.

Televisa and Univision will deliver even better entertainment experiences to our valued customers as to the new customers on a on a global scale, we couldnt be more excited about the opportunity ahead, and we look forward to updating you on our progress.

After announcing that come on.

The combination there has been value creation of almost $2 billion for Televisa shareholders and we believe there has been a mark to market of our stake in Univision and the $3 $3 billion that we will receive from this transaction.

On top of this we view two significant sources of value creation for Televisa first 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 had revenue and EBITDA of over $3 5 billion.

And $1 3 billion respectively.

These operations also had robust long term growth outlook, given Mexico's relatively low broadband penetration at 60% of homes.

These assets appears to be trading at a discount of around 40% to the 10 times EBITDA multiple of U S. Cable companies, we believe such a deep discount is not supported by fundamentals.

Second Televisa and Univision was have a strong growth outlook and solid free cash flow profile to reduce leverage relatively quickly.

Our new partners Softbank on Google did not investing Televisa Univision, assuming it's equity value will remain at $6 billion in the near future most likely the 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.

We have announced our friend Sal before local will be leaving us. After many many years of dedication and hard work of Grupo Televisa at Grupo Televisa.

He has told us that she needs a well deserved break.

His contributions and insights have always been great for us.

Thank you Sally we really appreciate your outstanding contributions to Televisa.

Sally will remain as a member of the board.

Televisa.

Salary you will always be missed.

If I may Alfonso for clothes.

I would like to thank you for your kind words.

I have worked that's going to be soft for the last 21 years.

It has been that terrific experience.

I am very grateful to Emilio that amount of loans to my colleagues, but especially to you on one zone.

You have been my boss during my entire career Televisa and I want to thank all of your support and less on top throughout all these years.

You have been a great tool.

Better frame.

I am convinced that great things are coming for Televisa in general on for <unk> in particular.

<unk> seen great Ken.

But based on your 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 continued trust and support.

Thanks.

Thank you Sal we also previously announced Jose Antonio on salaries will take over as CEO of cable.

From May the first.

Now we're ready to take your questions.

Thank you and as a reminder to ask a question you will need to press star one on your telephone for winter.

For all of the question press, the pound or hash team once again star one to get into queue. Please standby, while we compile the Q&A roster.

First question comes from total longer with <unk>. Please go ahead.

Hi, good morning.

Everyone. Good morning that comes on.

Two questions.

My first question is.

Guarding your opinion on your thoughts maybe on.

Potential change in regulation in Mexico with regards from the amount of.

Content must be produced nationally for OTT platforms I believe it's on 30% the proposal.

If you have.

Any readings for any thoughts on how.

And that could benefit or not.

Utilization for themselves.

Business on the content business.

My second question on watching this has maybe caught up on thoughts on.

We have made some comments regarding debt.

The opening of the economy and what that reached was hot for for cable on maybe prices from mid <unk>.

The group EBITDA and then just lastly, also I would like to thank Lal Sotheby on my best wishes going forward.

Thanks for all the help during these last years.

That would be all from my side.

Thank you Arturo for your question as to the first one we understand that there is basically two proposals in terms of.

<unk>.

That modifying or new loss before Congress that has to do with local content.

We don't know whether the Senate cash.

Has started the formal deliberations as to those loss of course.

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 in the Senate.

We want to wait on CE.

How the outcome of that ends.

Ends up being but of course, we'd love to see more production in Mexico.

Thank you our total regarding the second question I don't know exactly where he did cut off but what I mentioned is that there was that the acceleration on the net additions during the first water than 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 is some effect there.

People trying to cut some of the year.

We will see better trends, especially on video, where we have been having some quarters wave that negatively.

GAAP net additions.

Yes.

Thank you Charlie.

Yes.

Thank you.

Thank you. Our next question comes from Kai Las Vegas, EBITDA with GBM. Please go ahead.

Thank you and good morning, gentlemen.

My question is on <unk>.

Particularly how we what has changed from the outlook of the business that you are now choosing to be simple.

Operating expansion and.

So would it make sense to partner with a global player like you did in the content side. Thank you.

Hello.

Okay.

Please standby.

For centers, we cannot ignore.

GAAP can we go ahead.

Yes, now we can hear you.

So.

Carlos Thank you for your question I don't know.

Where I left debt or what you could hear about it but I was saying that bay.

Basically we are focusing on areas, where we feel comfortable where we can be very competitive.

Especially where the incumbent or the existing operators have underinvested and where.

We're planning to pass.

Past 2 million new homes this year.

We believe that we have a very solid brand I'll say was mentioning competitive offers.

Good service.

Content exclusivity piece and that will allow us to to gain market share in those areas. So we believe that we are we're also looking at very good results over the investment.

It's the right time.

Doing this.

For example in Guadalajara.

Expanding our coverage.

As a result of our participation in railcar lease co, which allows us to expand our offering to the residential areas.

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.

Using our strength and using the weaknesses of the participants we believe that these investments will be very good for for us and certainly can expand on that.

GAAP Carlos I would only add to what advance for sandbox 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.

Our well known brand we have been growing at a very good pace, but sometimes penetration in some of our market debt levels that we have reached on a 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 on where the we have the best elements to succeed on gaining good penetration levels and Thats, how we are deciding where we will be expanding our footprint.

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

That's a very thorough I appreciate the answer.

Thank you and a fine line there to get into queue simply press star one on your telephone.

Our next question is from Alejandro <unk> with BBVA. Please go ahead.

Hi, good morning, everyone. Thank.

Thank you for taking my questions.

One is related.

To the cable business.

Maintaining a remarkable revenue growth yet.

Price segment of your cable operations.

Could you provide more details about what are you sort of behind these growth.

Also the proportion of.

Global net revenue should these lines.

On the on mute on.

Margin indecent price segment.

Watching over this time on it can be great.

Thanks, Tom comes from Hawaii.

On the second question also on cable.

The number of video net additions from your cable business has been going up and down over the past several quarters, Although 90 day industry.

But I'd like your thoughts about the penetration rate debt.

<unk> Mexico.

Even with the positive traction that this jimmi Sue this is Jeff Harbin stands on <unk>.

On.

Thank you for pretty much Shelby corridor.

For him.

On for happening I wish you the best.

Alejandro Thank you for your question on.

Ask <unk> to answer it.

Thanks, Thanks on the handler Ryan Thanks for growth.

To meet the question regarding what is happening on the enterprise segment.

Our guidance for price division has being growing.

Faster.

In 2019, we started improving at many of the indicators of that.

All of the service to try to bring additional clients in particular, when we won this project of Greg Jalisco that would allow us to have some revenues that we get in 'twenty and in 2021.

Net cash.

The business, we will come to this contract in 2021, and we are always looking for new customers for new projects that would allow us to continue with the positive trend.

Sure.

Market share.

The enterprise segment is relatively low.

And we do see that there are opportunities to bring gains at.

Additional clients.

It's not that much deeper.

Depending on government contracts, we do have some relevant.

Sure.

Government contract, but we do not have weighed on the government like alder operate darice, Pat so it needs to be.

A diversified business.

In terms of subscribers regarding the second question off.

Video argues.

Well the economic environment has been challenging over the last 12 months there has been higher on an employment and there have been at less disposable income for many of our customers.

When customers are canceling their video service stayed consistently expressed that they have at <unk>.

Lower income and that they need to reduce some of their expenses.

Sometimes it's for pricing that when they canceled the bumble there has to be serving system at <unk>.

Two surfaces, they really are not saving a lot of money per day.

They need to make the.

Savings and Thats, why we say.

Those customers, we have not lost him on we would try to bring them back.

Our bundle is very very competitive when you put the three services there youll see outerwear.

Moving factor, it's lowered tool that of our competitors. So we believe that EBITDA economy improves we may be able to regain some of those customers.

It's also.

Trent.

People is changing the way they see.

Video linear channels and they are moving to OTT offers that's why we are also moving.

To be an aggregator of content that we are offering all the applications on our newer set top boxes.

I believe that.

Penetration of pay TV, it's facing challenges in some markets, but in our country.

If you see the numbers people continues to watch <unk>.

And on linear TV, sorry, and it's a great way of entertaining so I still think that it's not and looking at the numbers of the industry. It's not that we are seeing general decline, but it's more specific to some of our.

Sure.

Our customers we are post.

<unk> problems, so people have to pay the fee every month and Thats 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 put the search.

Great explanation. Thank you very much.

Thank you.

Our next question is from Maria Azevedo. Please state your company name.

Okay.

Hi, Thank you for the call. This is matti <unk> from Santander.

My question is on the A&D opportunities for <unk> M&A opportunities in the cable segment in Mexico, and how should we think about the future of this.

The cable group for their room for other technologies adoption you already had some F Dth operations, Doug well, how do you see the cable on the fiber playing out thank you.

Yes, Hi, Marty.

Now focusing on.

Operating.

The company's operating easy 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.

We believe that the opportunity is there.

Okay.

Perfect. Thank you.

Thank you.

And I'm not showing any further questions and Nikita <unk>.

You may continue with any final remarks.

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

Very much.

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

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