Q2 2023 Grupo Televisa SAB Earnings Call
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Pardon me, ladies and gentlemen content, that's going to begin shortly thank you for your patience. Please stay on hold.
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Good morning, everyone and welcome to Grupo Televisa in second quarter Conference.
Country, it's called <unk>.
I'll take the Spanish will be in a listen only mode should interest rates. Please press star and then deal 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.
Please note the call is being recorded I will now.
I'll turn the call over to Mr. Alfonso de <unk> co Chief Executive Officer, All Scoop on TV. Please go ahead Sir.
Thank you Donna and good morning, everyone and thank you for joining US with me today are Francisco <unk> CEO of cable reasonably be the CEO of Sky and Carlos Phillips CFO of Grupo Televisa.
Before discussing our second quarter operating and financial performance I'd like to welcome Francisco believe our CEO of our cable operations and share with you that we're thrilled to having him join Grupo Televisa executive team.
My name is a seasoned executive with over 34 years of experience, including 20 years, holding CEO positions, mainly in the telco media and service industries in Brazil and abroad.
Molina has led large and complex publicly listed and private companies and deeply understand the telco market and the broader delco ecosystem, including pay TV broadband and fiber optics networks in highly competitive environments. He is also very.
<unk> needing significant transformation and turnaround processes by delivering revenue growth acceleration best in class cost reduction increased profitability capex optimization and free cash flow generation.
My name is fluent in Spanish English and of course, Portuguese which is native language.
We're confident that balloon solid experience in the industry and strong track record will be extremely valuable to take our cable operations to the next level in terms of revenue growth acceleration enhance profitability capex efficiency and strong free cash flow generation.
Having said that let me turn the call over to Aleem for a brief introduction.
Thank you all for some good morning, everyone I'm glad to speak with the markets again, but now from Mexico City.
First I want to thank Grupo Televisa for the opportunity to lead the largest triple play service provider in Mexico with a powerful combination of access to succeed.
As you probably know usually has a pretty expensive and robust network capable of delivering very competitive internet speeds strong brand recognition and reputation.
Great quality of service and first class.
First in class customer care Department.
All of which are crucial to attack and retain good subscribers and therefore 18 sustainable sustainable growth.
Secondly, we are committed to implement the necessary measures to accelerate revenue growth that easy while going through its structural reforms to improve profitability and enhanced free cash flow generation.
As you may be aware of this is structural reforms have been under analysis over the last few quarters by an external consulting firm. So we use their extensive work as a basis to build upon and implement them as soon as possible before turning the call back to Paul So let me share with you that we are working on a detailed.
Long range plan to achieve our goals, we expect to share. This plan with you over the coming months.
Thank you William.
Now I'll walk you through Televisa and Univision second quarter results released last week, let me remind you that our stake in Televisa and Univision is a very important value component for Grupo Televisa's shares using proportionate consolidation. The Levy said Univision contributed with almost four.
40% of revenue and 35% of EBITDA during the second quarter, making it the second largest proportionate contributor to the group after our cable operations.
Televisa and Univision operating and financial performance were great. During the second quarter underscoring the power and resilience that comes from our unique fully integrated ecosystem across complementary platforms and geographies.
During the second quarter, Televisa and Univision delivered very strong revenue of $1.2 billion growing by 11% year on year, mainly driven by our global streaming business VIX and our core operations in Mexico.
EBITDA of $374 million remained stable year on year after having financed all our streaming investments related to new original premium content Sporting rights marketing and technology. Following the launch of <unk> subscription service.
The third quarter of last year.
It is important to highlight that Televisa and Univision flat EBITDA during the quarter represents a sequential improvement for the second consecutive quarter.
As we have left behind the peak of streaming losses.
Consolidated advertising revenue increased by 10% year on year.
In the U S advertising revenue increased by 1% or 4%, excluding political and advocacy.
We continue to outperform the market, which according to Magna declined by 4.8% during the second quarter, leaving us with six percentage points of outperformance.
This reflects the strength in national advertising and momentum in streaming where we continue to see demand from advertisers and increased pricing as we leverage our new ad formats.
In Mexico advertising revenue growth of 29% was driven by strength in both linear and streaming the 'twenty to 'twenty three calendar year upfront closed at the beginning of this year, where we secured record advertising commitment and the appreciation of the peso in.
Local currency terms advertising revenue in Mexico increased by 14%.
Consolidated subscription and licensing revenue increased by 14% year on year.
In the U S growth of 10% was driven by the success, our biggest premium tier along with pricing growth on the linear subscribers, partially offset by linear subscriber declines.
In Mexico growth of 27% was driven by big fish premium tier.
Growth in linear subscribers higher pricing and the appreciation of the Mexican peso.
In local currency terms subscription and licensing revenue in Mexico grew by 16%.
This was a fantastic quarter for VIX as we continued to see solid sequential growth in revenue and usage.
All of the important kpis of our streaming platform are going in the right direction.
Engagement is up advertising our pool is increasing CAC is down and Sac is declining.
This translates into revenue growth and profitability improvement.
Dreaming EBIT losses continued to decrease significantly both sequentially and on a year on year basis. Today, we are even more confident that our screening business will be profitable in the second half of 'twenty 'twenty four.
By the end of the second quarter, we launched our programming strategy in Mexico that has become a cultural phenomenon in a way that would have never been possible without our ability to conceive this content experience to leverage the best of platforms both linear.
<unk> and streaming in June we launched.
Our version of the reality show gasoline looks like most of us.
We launched the structured show on linear with two airings of week.
Immediately we created multiple live streams that ran 24 hours a day uncensored in front of the paywall on VIX.
After two weeks of building extraordinary engagement, we moved these 24 hour livestreams behind the paywall onto the premium tier of VIX.
The metrics were VIX around this property are on par with or better than many of the metrics that we saw for the World Cup last year.
As of last week 20 million people had engaged with the show on one of our platforms lifting both big sad revenue and premium subscriptions as well as linear ratings and free to air AD revenue.
Beyond the combined linear and VIX programming strategies, we continue to refine the unique content proposition on VIX, we continue to learn what resonates with our audience and refine our strategy. Accordingly, this quarter, we materially enhanced our soccer proposition for VIX is premium tier.
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This quarter, we continued to expand upon our breadth of distribution partners in the U S. We launched because this premium tier on Roku channel the biggest app on Lg's connected TV and we'll be launching on Bcl later this quarter. These.
These new partnerships have virtually doubled our connected TV footprint, making <unk> available on all major D V O E. Ms in the U S.
In Mexico, we partnered with AT&T to make VIX available with promotional pricing and seamless payment experience to.
To further enable cash payments, we expanded our OXXO partnership and redesigned our cash product experience addressing a key consideration in Mexico were cash payments are far more popular than credit cards.
And in Colombia. The next most important market in our expansion beyond our core operations in the U S and Mexico, We announced a partnership with RCN too hard lounge VIX.
Looking ahead, we're progressing towards closing our U S upfront at a pace in line with the industry.
Early data indicates yet another year, where we take share from English language broadcasters. In addition, we expect to fare better than market on pricing.
Rectifying the pricing gap with the general market has been a huge area of focus for us and we've made significant progress ultimately we expect volume to finish up mid single digits and incredible accomplishment in the market as challenging as the one we are facing as the rest of the IND.
History.
To sum up we are very excited about the first half of 2023 from both an operating and financial perspective at Televisa and Univision. Once again, we grew revenue across all business lines and geographies, while we managed to keep reducing our streaming losses as we scale the business.
We continue to expand our leadership in the massive and influential global Spanish speaking market and leverage our content powerhouse to program linear and streaming as complementary platforms. While we have a differentiated streaming platform that is aligned with our stable core business.
Ms.
This combination of factors she will keep.
Allowing us to deliver sustained above market financial performance at Televisa and Univision.
Moving onto Grupo Televisa second quarter operating and financial performance consolidated revenue reached <unk>.
18, and a half billion pestles remaining virtually flat year on year, while operating segment income reached 6.8 billion pesos equivalent to a year on year decline of 3.3%, partially driven by inflationary pressures.
Once again revenue growth in cable and our other businesses segment was offset by declining revenue at Sky.
Since we announced volumes appointment.
He has been fully engaged leading and familiarizing himself with the team at our cable operations.
These few weeks have already been very productive.
But had been mainly a transition period. So this time I will explain the operating and financial performance of our cable operations before turning the call over to Luis to discuss skies.
In cable we ended June with a network of 19.4 million homes after passing more than 400000, new homes during the quarter.
We also delivered around one 3 million fixed <unk> gross adds mostly in line with the average of the last three quarters showing that demand for our services continues to be robust. However, a combination of factors, including the expiration of promotions for the fourth quarter of last year.
And price increases implemented in the month of April led us to experience an increase in churn.
This translated into over 26000 fixed Archie you net disconnections in.
In broadband we lost 38000 subscribers during the quarter while in video we had 46000 net Disconnections. This was partially offset by more than 57000 bought voice net adds and 21000, new mobile subscribers.
During the second quarter revenue from our cable operations of $12 3 billion vessels increased by 4.6% year on year, while operating segment income of $4 8 billion pesos fell by 2.2%.
Our cable operations margin of 39.4% contracted by 270 basis points year on year, mainly driven by inflationary pressures in labor and content related costs now, let me turn the call over to <unk> CEO of Sky.
They get a phone so let me provide you with an update on Sky second quarter operating and financial performance.
In terms of revenue generating units, we observe a decrease of 191000 odd to us during the quarter, although we improved churn rates for both prepaid and postpaid Dth, our Soo scrubbed base decline as a result of our program to enhance those quality.
The loss of RG use in Dth was partially mitigated by new product offerings.
Sky Tiller Sky mobile digital operator service experienced a 7000, Oh Gee you growth in the water.
Additionally, as part of our digital transformation strategy, our enhanced OTT platform due to go contributed to an addition of 21000 argued use this quarter, resulting in a net gain of over 95000 units over the past 12 months.
Moving onto our broadband business Blue Telecom, we face a new decline in the subscriber base due to the limited all towns network availability, which restricted news house.
Nevertheless, alongside with the regular attrition of the business. We are optimistic about the launch of new fixed broadband services in partnership with easy This sky Internet will pave the way for recovery and growth in this lucrative market.
Now, let me walk you through the financial results for the quarter.
Second quarter revenues declined 13.4%, reaching $4 4 billion basis. This decline was primarily driven by the before mentioned Sue scrubbed based drop partially offset by the price increase in postpaid video customers implemented in May.
Furthermore, operating segment income decreased by 15 points, 0.6%, reaching a margin of 32, 4%.
This decline is attributed to lower revenues, which were partially offset by a drop of cost of goods sold and operating expenses due to the successful implementation of efficiency measures across our operations.
As you May recall last year, we developed an ambitious simplification program aimed at improving efficiency and seamless operations across the entire organization.
As of the current nowadays this program is projected to yield an impact of 790 million pesos in 2023 and 60% of the in each of these have already have been executed while full savings will be reflected over the two coming quarters.
Regarding capital expenditure, we invested $84 million year to date, indicating a substantial 26% decrease compared to previous years disagreed.
This reduction in capital intensity can be attributed to the strategic measures we undertook to enhance return on investment along with the successful implementation of this in blade vacation program mentioned earlier.
A key indicator, reflecting the positive impact of these efficiency measures is EBITDA minus capex, which has grown by 16% year on year, increasing from one three to $1 5 billion pesos.
And before turning back to Alfonso I would like to emphasize that despite the challenges posed by the topline downward trend we remain confident in our ability to risk bearers. This trajectory. This confidence is grounded in the comprehensive transformation of measures we are implementing including.
All new and disruptive video offer the introduction of more competitive broadband services and if customer lifetime value management.
Thank you Luis to wrap up despite the macro challenges with relative soft GDP growth and still relatively high inflation rates globally, but none of them and I are optimistic about the medium term operating and financial growth prospects for our DIFM.
<unk> businesses.
At Televisa and Univision, we continued to grow revenue across all business lines and geographies materially outperforming our peers driven by a leading Spanish language streaming platform VIX that has been growing both sequentially and year on year and our core media.
Is this that keeps growing at a healthy pace.
Mix is strong operating and financial performance.
Lead us to feel even more confident that our streaming business will be profitable in the second half of 'twenty 'twenty four.
This would be a major achievement as we estimate our streaming platform to be profitable only two years after lounge, while most of our peers expect to turn profitable in four to five years.
In cable, our operating and financial performance is far from reaching its full potential but.
But we're confident that under <unk> leadership, we will be able to reduce churn.
Gradually delivered solid I G. You net adds again and accelerated revenue growth.
In addition, we are fully committed to implementing structural reforms to increase profitability optimize capex and enhance free cash flow generation.
Finally at Sky, we continue to believe that transformational measures implemented during the second half of 2022 and the new telco services that we have been lounging in 'twenty to 'twenty three under the Sky brand will allow us to gradually achieve sequential operating and financial improvement.
Over the coming quarters.
Now we're ready to take your questions Donna could you. Please provide instructions for the Q&A.
Thank you we will now begin the question and a quick question.
To ask a question you May press Star then one on you touched on phone.
Speakerphone, please pick up your handset before pressing that.
Pete.
Okay.
To your question.
And you would like to withdraw your question.
Alright.
We will pause momentarily to assemble our roster.
Our first question comes from Carlo.
Please go ahead.
Hi, gentlemen, good morning. Thank you for taking the questions just two quick ones. The first one what was the driver behind the high margin and the other business segment.
Secondly, with the stronger at Nexsan versus where the Euro dollar are you revising your capex guidance for the year. Thank you.
Hi, Carlos yes to other businesses.
We have basically an increase in revenue in gaming.
92%.
So it's operating much better than that.
During Covid of course, where we had everything shutdown to revenue increase of 22% soccer.
Our growth in revenue of 13% and that was due to strong attendance at the games the stadium performed better.
And also team sponsorship that we closed during the quarter and that was partially offset by publishing where.
The continued headwinds both in circulation and advertising of the magazines got us to a decline of 27% in terms of our revenue so that translated into to the EBIT the strong EBITDA.
Growth at Utah and.
I guess in terms of our Capex.
Even considering the.
The exchange rate.
What we see is that.
We estimate that we will invest around $620 million this year.
And it's important to take into consideration that the FX volatility.
You were mentioning could translate into deviations, but.
But mostly without that it's going to be around $620 million.
Thank you.
Okay.
The next question comes from Luca Chatty with UBS.
Please go ahead.
Yeah.
It looks like Lucas' line got disconnected. The next question comes from what I told me that with Goldman Sachs. Please go ahead.
Hello, Good morning, all and thanks for taking my question sure two questions from our side. The first one is on M. S fill mass market margin our costs already fully reflecting this years inflation on labor content costs than the other or offending line or could we.
He further impact true MSR margin in the next water.
And the second question also on easy regarding that Disconnections were there any geographical areas that saw particularly high churn this quarter or any particular comparator arms back to Cam does charge customers and in that context has telematics increased fiber deploy.
And to an increased commercial activity being an issue for easy so far thank you very much.
Thank you Vito Alaska Ballooned to answer your question.
Good morning.
In terms of our MSL margins all of the costs have already been fully reflect that so that we don't expect any pass through inflation.
Going forward as far as the MSR is going to start in terms of Disconnections. What are we have been seeing is a reflex the reflection of.
Hey compound effect of.
Obviously, the increased prices, but most importantly, the promotions that were expiring.
For the last several months say it was done last year.
It has been broadly across the board. So we don't have we don't see any specific areas where John is.
Different form.
Significantly different from what we were expecting.
Clear thank you very much.
The next question comes from Marcelo Santos.
J P. Morgan. Please go ahead.
Hi, good morning, Thanks for taking the questions. My first question is to Francisco Valley.
Sure, perhaps your preliminary diagnostic of Televisa cable did you see any kind of low hanging fruit based on your experience. That's the first question and the second question.
Regarding cable was we saw a strong pickup in the pace of deployment of homes passed I think you reached almost 700000 homes passed this year. Our view was that you were going to add 801 billion. So is there a space for upward revisions in this number are how should we think about the growth given the very strong first half of the year.
Thank you.
Marcelo good morning.
Well, we haven't seen what I have seen here since I've I've started my this transition period is that we have several opportunities in terms of our cost structure.
Structure reforms that are we're already in the making that we think that we can implement very quickly. So yes. There are some low hanging fruits in terms of how we operate in terms of.
The cost structure and in terms of our capex optimization and that kind of ties into the your next question.
As I understand the plan the plan was to be around 700 800000, new homes passed this year and we are very close to that number. So we don't anticipate any any upward.
On that number.
Yeah.
Perfect very clear thank you very much.
Again, if you have a question. Please press star then one can be joined into the queue.
Question comes from Greg Mendez.
Please go ahead.
Hello.
Good morning, everyone and congrats.
Trinity I have my question I'll sort of cable as well the first one just a follow up from the for the lifestyle, but trying to understand are you guys for some reason you raised the bar in terms of the graduates of decline and then eventually that led to a higher churn how long is the promotional so just trying to understand if you're raising the bar and then eventually that we could see.
Sandeep movement.
As we move forward.
This is this will be my.
My My My first question and then and then again.
The also on the cable.
These these disconnect shows did they had been mainly on fiber or mainly I would say I would say Emmanuel cable worries you also see somebody's credentials on fiber just try it you'll see a water should expect for the next for next Butters. Thank you.
Yeah, Alaska volume to expand to your questions Fred Thank you.
As we mentioned the fixed start to you gross net adds were very strong once again this quarter at around $1 3 million, which is mostly in line with the average for the last three quarters.
We brought our $5 million RJ used in the last 12 months.
$2 2 million broadband subscribers.
So basically EC has $6 6 million scribe subscriber base with a 35% penetration, which is very good and we also have a network as you know up $19 4 million homes. So the demand for our services continues to be robust.
However, as to your question and <unk> will expand on it.
Nation of factors, including.
Exploration of promotions that we have touched on.
From the fourth quarter of last year and.
Price increases that we implemented in the month of April that led us to experience this increase and in turn so.
Can you expand on the <unk>.
Anything out of the buyer and Fred question sure. So thank you Alfonso.
Here It is bad.
Sure.
The reason I want to just mentioned has picked up.
In June July as vacation month in Mexico. So we anticipate also having a little bit more.
More churn there.
This month, not not compared to the previous month, but compared to the annual average.
And Oh August is a great month as back to school. So we see a lot of net adds.
Potential additional add on that so sure.
Stan has many many reasons.
Several of those reasons in terms of raising the bar, yes. We are we try to scrutiny as coordinated as much as possible new clients, because we want to make sure that they stay for a longer period of time and we see that moving forward. So we want to be more targeting more targeted in how we.
Our approach to market, making sure that we bring the best clients considering that we already have most of the best player in this market. So retaining those boys is our top priority and bring in clients that are equivalent to those clients just as what we are aiming to do.
Moving forward.
Perfect perfect very clear. Thank you. Thank all forced to think about it.
This concludes our question and answer a question I would now like to turn the conference back over to Mr.
<unk>.
For any closing remarks.
Thank you very much for participating in our call. If you have any additional questions. Please call us.
Very much.
Yeah.
This concludes our country.
Participating today.
Got it.