Earnings Call: Q2 2021

Jul 6, 2021

Good morning, everyone, and welcome to Grupo Televisa's Second Quarter 2021 Conference Call. Before we begin, I would like to draw your attention to the press release, which explains the use of forward looking statements and applies to everything we discuss in today's call and in the earnings release, I will now turn the call over to Mr. Alfonso de Angoitia, Co Chief Executive Officer of Grupo Pellevisa. Please go ahead, sir. Thank you, Carmen Cita. Good morning, everyone, and thank you for joining us. With me today are Antonio Gonzalez, CEO of Cable Alex Pena, CEO of Sky Patricia Wills, Herr of Televista Studios and Carlos and Carlos Cabrera, Antonio Lana, Corporate Vice President of Finance and Administration, respectively. Let me start by saying that Mexico's Economic activity recovered strongly in the months of April May, expanding by more than 20% year on year, largely due to robust growth in Manufacturing and the Services sectors. Apparently, the better than expected momentum experienced at the end of Q1 was carried over to the Q2, aided by the timing COVID-nineteen cases, rebounding activity in the U. S. And improved sentiment. The economic recovery is expected to continue, supported by further easing of social distancing measures with vaccination of the population gradually growing over the next few quarters. Mexico will also benefit from positive spillovers related to robust U. S. GDP and income growth, potentially continuing to accelerate activities related to tourism, exports and flow of remittances, stronger terms of trade and the lagged effect of monetary easing. The Mexican economy was hit hard by the COVID-nineteen pandemic last year, reducing GDP by 8.5%. However, in 2021, GDP is expected to grow at around 6% after the latest upward revisions, we could do most of what the Mexican economy lost in 2020. Our content business, which has operated with limited interruptions throughout the pandemic, has been the main beneficiary of the robust economic rebound. The private sector has remained quite active, advertising their products and services as has been the case over the last couple of quarters. While the reopening has had a positive impact in economic activity, the unemployment rate deteriorated in April to 4.7% compared to 3.9% in March. So we have been cautious with promotions both at Cable and Sky. Still, with GDP recovering, job creation will accelerate relatively quickly, making the recent increase in unemployment to be short lived, evident by the unemployment rate in May released a few days ago, which already declined to 4%. Moving on to our financial results for the quarter. Consolidated revenue reached ARS 24,800,000, Representing a year on year growth of 10.5 percent, while operating segment income reached ARS 10,100,000,000 Equivalent to a year on year growth of 17%. Bernardo and I are pleased that our portfolio of assets delivered remarkable growth in In our content division, advertising revenue increased by 32.1 percent due both easy comps And a strong rebound in volumes from the private sector, where businesses are looking to position their products and services in front of consumers to take advantage of the robust economic recovery. Televisa's high audiences and wide reach on free to air television position us very well to help our clients achieve their goals. Some social distancing measures remain in place during most of the Q2, but our advertising clients are better prepared to operate in this environment than they were a year ago, And they have been more active since the end of 2020. Private sector advertising revenues were very strong, growing more than 35% year on year. On the other hand, government advertising revenues were weak, Driven by ongoing austerity initiatives and as political advertising is not allowed ahead of the midterm elections. As you know, government advertising has been shrinking over the last couple of years. So today, its the share of total is already very low and will continue to be very low. Royal Mints from Univision of 100 dollars 6,000,000 were 26.2 percent higher year on year, supported by easy comps, the strong economic recovery in the United States and the transmission of major soccer tournaments. Univision's strong operating performance was also driven by several initiatives implemented by management, including a revamp of the sales team and the optimization of advertising inventory. We expect Univision's solid economic solid revenue growth to continue given the historically strong preliminary results of this year's upfront. All in, during the quarter, content revenue increased by 16.6% while operating segment income grew by 23.5%. Our constant margin expanded by 180 basis points to 32.7 percent due to the strong revenue growth. Despite additional OpEx associated with the coverage of the midterm election, more production of content, including sporting rights related to the Mexican Soccer League, the CONCACAF Nation Fleet and the Prix Olympics In 2020, the COVID-nineteen lockdowns led us to have less content production costs as we broadcasted several reruns and many sporting events for cancel. With advertising revenue up 30.2% year on year during the first half of twenty twenty one, stronger GDP growth outlook for the year and robust advertising consumption from the private sector, we feel confident that advertising revenue is likely to grow low double digits for the full year. That's low double digits for the full year. I will now turn it over to Patricio to discuss our progress in content during the quarter. Thank you, Alfonso. So in the Q2, 16 of the top The current programs of Mexico's broadcast television were produced in Transmedia Fire Television. This includes telenovela's dramas, newscasts and comments. Televisa's top fixed program during the 2nd quarter, including Quellepasa, Mi Familia, La Rosa, Eduardo Lupe and Quellercas, Beni The volumes are between 59% and 7% higher than the top rated programs of our closest competitor. For the whole week, Televisa's volumes were 89%, higher than those of the 2nd largest broadcasting, while audiences at our flagship network, Las Estrella, were 150 1 percent higher than those of our closest competitor. It shows that the oil and gas with our closest competitor continues to increase compared to 74% 100 and 12% higher balances, respectively during the Q1 given the solid ratings of our program. During the Q2, our main news cast has 25% higher earnings than the all 2 news cast all 3 to LTE combined. In addition, the best product of our second network, channel 5 was among the top 20 with similar policies than the average of the top 4 programs in the flagship channel of our main competitor demonstrates the strength of our content across all our channels. During the Q2, Univision's audience share remained well above that our main Spanish language competitor. We believe this will keep helping us to benefit from the economic recovery in the U. S. Thank you, Patricio. Now let me turn the over to Stefano, CEO of Cable. Thank you, Alfonso. For the Q2 of 2020, the Cable division posted year on year revenue growth 5.9%, while operating segment income increased 7.8%. Our Residential segment revenue grew 6.4%. Our Enterprise segment, which accounts for around 15% of total cable revenue, grew 4.3%. In part due to the timing of revenue recognition, the accumulated year to date revenue grew 9% year on year. Our cable business keeps growing with higher average revenue per user in new sales and a strong improvement in the product mix, we added almost 60,000 revenue generating units for a total of 14,300,000 our views during the quarter. As anticipated, net additions have slowed during the have slowed returning to pre pandemic levels. Last year demand for our services accelerated significantly because of the social distancing measures to prevent the spread of COVID-nineteen. During 2019, we added 812,000 units, while the same number for 2020 was 1,260,000. This basically means that our Q2 net adds in 2020 were an outlier. Broadband continues to be the highest margin service, so we will continue to enhance the product offerings for this. We added 31,000 broadband RGUs during the quarter for a total of 5,600,000. For the 9th consecutive month, we have been number 1 in the Neste's ISP EBITDA mix, confirming our trustworthy and competitive service. We continue to observe good results in voice IoT views. They surpassed the number of video IPUs since the Q4 of 2020. We have been very successful at upselling these services to our customers. We had 31,000 net video disconnections during the quarter, largely due to customers prioritizing broadband services and looking to reduce their monthly bills. We are strengthening our customer retention programs with particular attention the fact that many subscribers kept our broadband services should help in maintaining video subscribers in the future. Mobile customers continue to grow. At the end of the quarter, we have 121,000 RGUs, an increase of 27,000 from last quarter. The trend continues to be strong. Looking forward, on the one hand, as the economy bounces back, we expect demand for our services to grow with potential opportunities in our small and medium business segments. On the other hand, we don't foresee the extraordinary surge in demand we experienced in 2020 because of the pandemic. Therefore, we are strengthening our sales promotion strategies and our customer we will take advantage of these simultaneous effects. Before turning the call back to Alfonso, let me say that our plan to grow EUR 2,000,000 from that this year is on track. This will help us to gradually accelerate RCU net adds over the coming quarters and more evident in 2022. As announced, levering on the Res Jalisco project with the state government, we successfully launched the PDUFA plate fiber to the home service in the city of Guadalajara, the 3rd largest city in Mexico. We are convinced that the expansion to selected locations makes a lot of sense for Italy. We have a nationally recognized brand, exclusive content Thank you, PPT. Now let me turn the call over to Alex Pena, CEO of Sky. Thank you, Alfonso. At Sky, revenue increased by 1% year on year during the quarter, But operating segment income fell by 3.4%, driven primarily by the amortization of certain Such as the UEFA Euro 2020 and the Americas Club 2021. Sky added 19,000 RGUs with 3,000 video subs during the quarter, mostly driven by bundles with our Blue Telecom broadband service. On the broadband side, we added 9,000 RGUs during the quarter, reaching a total of 707 1,000 Broadband RGUs. In the aggregate, including our MVNO service, which added 8,000 RGUs during the quarter, we closed with approximately A total of 8,200,000 RGUs. Our Sky Sports package is gaining traction, But at a softer pace than initially expected, as the economy keeps strengthening And unemployment rate declines, we would expect the pace of adoption of this package to accelerate. As a reminder, this is the prepaid package, including exclusive sports content, Such as the Spanish League, the English Premier League and many other key sports properties as well as all free to air channels and Tel Aviv's suite of pay TV channels. Thank you, Alex. Regarding CapEx, year to date, we have invested $555,000,000 Of which BRL 406,000,000 have been invested in cable. As discussed during the call of the Q1, our CapEx target for 2021 includes $850,000,000 in cable or $200,000,000 more than what we invested in 2020, given that we will pass 2,000,000 homes with fiber, dollars 250,000,000 in Sky and $75,000,000 in Content before we close, I want to share with you that on June 21, we unveiled at Univision our plans for a comprehensive global streaming service, which includes both free ad supported and premium subscription based to launch in the United States and Latin America in 2022. The 2 tier streaming service will offer a differentiated product proposition, vast content scope, expansive library and more Spanish language originals than any other streaming service. Our streaming platform will be fueled by full access to Televisa's deep content library an iconic IP as well as an ambitious slate of new originals produced by the leading creators in the Spanish speaking world. The best of the existing Trenda TV, VIX, Univision Now and Lending Services we'll be transitioned and unified into 1 global service and brand. Brand, pricing and specific launch dates for the service will be announced following the close of the Elisa Univision merger later this year. The ad supported here we will be anchored by Univision's current free Spanish language streaming service, Trembepv, and Televisa's BIM ABOT platform. This free tier will feature an upgraded broadcast quality content proposition, including select originals, major studio films, premium Spanish language titles and expanded live sports offering and a unique 20 fourseven move service. In total, the 3 tiers will have over 100 linear channels and over 40,000 hours of wholly owned and acquired content there will also be offered a video on demand for it. The new premium subscription tier will feature more than 6,000 hours of Spanish language content with more than 30 original productions throughout 2022, featuring globally recognized and award winning producers, Creators and writers. We also announced that Univision already launched projects with Maria Duenas, Santiago Limon and Nobel Prize winner in literature, Mario Vargas Llosa, with many more to be announced in the near future. The vision for the premium SVOD offering is to bring audiences more originally produced Spanish language content than any other streaming service global. To execute on this vision, Rodrigo Masson has joined as EVP and General Manager at SVOD. With more than 10 years of experience in streaming, Mason joined Univision from Netflix, where he most recently served as VP of content. Rodrigo Masson, a pioneer in premium Spanish language streaming and content, will be responsible for all elements of the SVOD service. Masson's appointment follows the recent addition of Michael Cerna, a new division's new EVP product engineering streaming. Serga joined the company from Disney Plus, where he was Global Head of Product and oversees the Product an engineering strategy for Univision's streaming portfolio. Michael Serra has built, scaled and globalized one of the most successful streaming products in the world. Additionally, Rafael Urina, Univision's TV P and GM AVOD Streaming, who has extensive experience scaling large ads supported by video audiences, continues to lead Trenda TV and will lead the future free ad supported both in the United States and internationally. Our global streaming platform will be home to the most renowned and celebrated creators in Spanish language media. As the first premium service significantly designed to serve the global Spanish language audience, Univision will provide the resources and creative freedom to develop in language authentic world class content. With the acquisition and integration of VIX, the launch of the current early version of Prenda TV and Pliny, we now have an audience that is more than 8,000,000 users worldwide and growing rapidly. To wrap up, with consolidated revenue and operating segment income growing by 6.5% and 12.3% year on year, respectively, during the first half of twenty twenty one. Bernardo and I feel confident that our operating performance for the full year will be quite solid. Moreover, the strong recovery that we we expect to achieve in 2021 and the strategic initiatives implemented this year will position us well to achieve Sustainable growth over the coming years. Now we are ready to take your questions. Carmen Sita, could you please provide us provide instructions for the Q and A. Certainly. Please standby while we compile the Q and A roster. We have a question from the line of Marcelo Santos with JPMorgan. Please go ahead. Hi, good morning. Thanks for taking my question. I have 2. First, if you could comment a bit on the new bill that you launched, I think, in the end of May, if I'm not mistaken. Is there any preliminary information that you could provide on how that's going? I think it already follows the 2 tiered system. And the second one is regarding Sky's broadband ads. There was a deceleration versus previous quarters. Is this mostly related to the reopening? Could you please comment on what to expect on the broadband of Sky? Thank you. Marcelo Munoz. I can comment on Grim. We did launch an A log tier within the platform. We did a soft launching of that platform during the quarter. And we're seeing that the traction is excellent in terms of Of usage in terms of stickiness, just in this soft launch, we got to 300,000 users and we believe that we can achieve quite easily more than 2,000,000 users by we will be launching this officially in the next 3 weeks. And this will be a complement of our SVOD platform. Basically, that SVOD platform It's based on Televista content, and there, we have gotten to 1,300,000 subscribers. So as I was saying, the stickiness, the usage is there. There are a lot of users that want to watch the Teresa content, and we're happy using our library to be able to get to those usage levels and to those and on the ESBLOC platform to get to those subscriber levels. As we mentioned, we will integrate that into a single platform within the Univision and Televisa merger To be launched in 2022. And I'll ask Alex to answer the Second question. Marcelo, yes, as you know, our broadband service it's being offered over the Autan network. And Autan as already defined, what portion of the network is going to be dedicated to broadband and the what part is going to go for the cellular service. And having said that, yes, in this Q2, there has been a combination of Lower sales of broadband service Combined with slightly higher cancellation that resulted in the net adds the Q1 of last year. Therefore, what we having said that, what we could expect Going forward, in terms of growth of broadband services, it's going to be more in line with what we saw in the current quarter. Thank you. Just a follow-up To understand the outturn, so is outturn, do you mean that the capacity they have available for you it's more limited because they want to give more capacity to mobile. Did I understand correctly? That's correct. They want to dedicate the bulk of their existing capacity over their network to the cellular service. Okay. Understood. Thank you very much. Thank you both for the answers. Thank you, Marcelo. Thank you. Our next question is from Luis Janss with Compass. Your line is open. Hi, good morning and thanks for taking my questions and congratulations on the quarter. Two questions on my side. I noticed the slowdown in subscriber growth on the cable side, especially on video. How much of it Has to do with the economy still kind of slowly recovering, how much it has to do with your cautiousness in terms of adding subs and avoiding churn and how much it has to do with waiting to get the home in some of those new markets and I guess the lag between that and ad and subscriber growth. And how do we think about in terms of Timing, when do we expect an acceleration? What would be the biggest driver? So that would be my first question. Then the second question, if you could give us an update in The timing for the Univision merger, whether all the approvals are going kind of in line as expected and whether you expect Close kind of around the same time you were announcing before. And I guess a related question to that would be, you're going to have a much healthier balance sheet. And I guess a lot of it, Based on what you said, it means that you're probably going to be investing more. I mean, we saw with the CapEx organically. But I wonder if buybacks come back into the question, M and A comes back into the question. So just thinking forward, as you streamline your operations, what's next for Televisa once you have that a stronger balance sheet? Thanks. Thank you, Lucia. To your first question, of course, 2020, because of COVID and the effects of the pandemic and also because of the needs of connectivity was an outlier. So if you compare 2021 second quarter results to the Q2 of last year, Of course, you see a slowdown, but I left Petronia to go into further details as to the results And we're continuing and then I'll take your second question. Thank you, Luis. I think there's a couple of reflections. First, the first thing to keep in mind is that in the long run, the in home connectivity demand is still huge in Mexico. Broadband penetration is still very low at around 60% of the homes. So I think in the long run, we should expect the acceleration to resume in ROGU's net add in the medium term. Now as Alfonso said, in the short term, there are 2 opposing effects. On the one hand, the demand for connectivity, video entertainment and broadband services are Turning to the pre pandemic levels. And this is stabilizing as people are returning to work and children are returning to school, etcetera. To give an idea of how big this affected, during 2019, there were 812,000 RGUs added, While the same number in 2020 was $1,360,000 the equivalent of 1.7 times. The second effect the second opposing effect that you correctly mentioned in your question is the economy is now in that vigorously. So we GDP is expected to grow 6% in 2021 and with it employment, disposable income and the demand for we think this growth would be uneven. So we expect stronger growth on our enterprise segment, but we also expect demand on our home segment to increase. But as such, we are strengthening our sales, promotion and customer retention programs to take advantage of these 2 simultaneous effects that are going on. We think that as growth accelerates and with the increase of 2,000,000 home passes in the rest of the year, this should put us in a strong position to see net adds gradually stabilize in a sustainable path. And Luisa, to your second question, it has to do with the approval process of the Televisa Content and Univision Merger. We have made all the filings both in Mexico and in And in the United States, the approval is ongoing and is in due course. We expect it to conclude before year end, So we can close the merger before year end, as you were saying, Tenerisa will continue to have a very solid balance sheet. And at this point, our capital allocation priorities are mainly focused on leverage reduction. And of course, we will always see growth opportunities at our core businesses. Great. Thanks a lot guys for the answers. Thank you. Thank you. And our next question comes from Carlos Lagarreta with GBM. Your line is open. Hi, thank you. Good morning. It's actually two questions on Cable, please. The first one is, if you could report on the events on the Cable Expansion footprint by $2,000,000 Are we seeing growth from this expansion already or will it be skewed towards the end of the year as you finish with the rollout? And the follow-up is, we understand the economics in a fiber connected household are more favorable. This is through higher ARPU, lower churn, Your maintenance CapEx, etcetera. It would be really helpful to have your comments. And also, if you could disclose what percentage of your current home staff Thank you, Carlos, for your question. I'll ask Petitoglio to take it. Thank you, Carlos, for the question. As I said in the remarks, the construction is going on track. We have roughly just over 500,000 homes passed already, and this will continue for the rest of the year. So we've already actually begun the sales process in Guadalajara, which is our initial city, just recently, just a couple of weeks ago. As you rightly said, we think that by the end of the year, we will have around 25% fiber to the home. And the rest of our network will remain stable. As you know, we have made substantial investments in the last few years. The HFC network is very competitive. Most of it is 3.0, and it's ready to be upgraded to DOCSIS 3.1, which allows us to increase the speed from 100 Mbps to 1 gigawatt to 3.1. So we're very confident that we have a very competitive network, but all the new expansions we're doing in fiber optics for the regions you mentioned. Yes. In each area where we are expanding and as Peppettoino had reported, of course, I mean, we look we are going to be moving into different criteria, and we're very disciplined about it. So it depends on a variety of factors going into these areas, it has to do with penetration in those areas with ARPUs and very specifically with profitability. So we believe that where we are growing, we'll be Successfully in achieving high penetration levels within a short period of time. So we're very excited about that expansion. Thank you for your comments. Thank you. Our next question is from Matthew Harrigan with Benchmark. Your line is open. Thank you. I was curious, would you look at the share of connected TV advertising relative to additional linear TV In the U. S, I think it's about 15% to 18%, including Roku, Hulu, etcetera. Clearly, if you get that type of ratio in Mexico and in the Spanish market in the U. S. Over time, you're going to be in a great place Given your linear TV advertising numbers, can you talk about where that percentage would be in the Spanish market in the U. S. And Mexico right now? I assume it's quite small because you're addressing Right now, I assume it's quite small because you're addressing a neglected AVOD Yes. So Are you talking, Matthew, about share of advertising? Or did I get that right? Yes. I'm looking at The ratio of advertising dollars that, let's say, Roku or Hulu and various other companies get in the U. S. Relative to the size of a linear Traditional broadcast market is about 15%, I mean clearly growing very, very quickly. I assume it's much lower than that In the Spanish language market, both in the U. S. And Mexico, I think it highlights what a huge opportunity you have on the AVOD Sorry, given that it's neglected. So I assume that, that percentage must be in the mid- to high single digits right now. Or can you comment on that Objectively, even if you don't have a lot of consultancy numbers or such? Thank you. Yes, yes. You're absolutely right, Matthew. And those numbers are even lower than the ones that you're mentioning. Basically, the SVOD I mean, just the AVOD market doesn't exist. So we are creating it as we speak. And you see the traction even with no advertising and with a soft launch, you can see that it's I mean, the appetite for the Televisa content on a platform like the one we're launching, it's if you look at the numbers of usage and people going to YouTube, for example, just to watch episodes of the Pelenta programming, those audiences are going to be So we believe that there is a huge opportunity in the Spanish language from $3,000,000,000 to $4,000,000,000 by 2024, so it's a huge market. It's an untapped market. We'll be able, of course, to offer Targeted advertising and advertising in general to specific audiences. So we believe that it is a huge untapped opportunity that will grow substantially. As I mentioned, Concerning the stickiness of the content and the usage that we're seeing in the Blim AVOS platform, we're very excited about that. Also what we're looking at, Parenda TV in the United States in terms of usage, in terms of stickiness. So we're very excited about putting all these together and launching a single platform in 2022, and we believe and we're determined to make this a big success. Fantastic. Thank you so much for taking my question. Thank you. Our next question is from Alejandro Galloestra with BBVA. Your line is open. Hi, good morning, everyone. I have a couple of questions. The first is regarding dividends. I believe that, Tolviso's inhibition will not be paying dividends in the near term. So I would like to know if this bill will change your dividend policy that has been That's my first question. The second question is related to the Calabasum inhibition strategy, you've been saying that you expect the Columbus Univision deal to close by the end of this year. And you also plan to launch your premium video streaming service early next year. I believe that you are not budgeting for additional content expenses in 2018 1. So I was wondering if you'll have enough time to include a full catalog of exclusive premium content by the time you launch the new stream platform or if you're going to increasingly include that exclusive premium content over time. So, any additional color on this would be appreciated. Thank you. Yes. Thank you, Alejandro. As Pierre did, as to the dividend policy, we will continue with the same one that we have had For many, many years, we you have to take into consideration that we have high growth and high CapEx business which is easy or our cable platform, and we expect to continue investing in that platform as we go along and we grow the number of subscribers. So we are going to keep our dividend policy. As to your second question, as I mentioned, we do expect to close the merger between Televisa Content and Univision by year end. And as to the premium content, what we have done is we hit the road running. So that means that we are already producing the premium content that we will use for the launching of the platform in 2022. So we are already doing that, and we want of course, you will see A lot of those productions in year 2022 and of course, more to come. So we are already working on all of those. Thank you. And I'm not showing any further questions in the queue, sir. Well, thank you very much for participating in our call. If you have any additional questions, please call us. Thanks. And this concludes today's conference call. Thank you for your participation and you may now disconnect.