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Edited Transcript of A3M.MC earnings conference call or presentation 30-Apr-20 11:00am GMT

Q1 2020 Atresmedia Corporacion de Medios de Comunicacion SA Earnings Call

San Sebastián de los Reyes May 21, 2020 (Thomson StreetEvents) -- Edited Transcript of Atresmedia Corporacion de Medios de Comunicacion SA earnings conference call or presentation Thursday, April 30, 2020 at 11:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* David Gómez Baquero

Atresmedia Corporación de Medios de Comunicación, S.A. - Director of IR

* Silvio José González Moreno

Atresmedia Corporación de Medios de Comunicación, S.A. - CEO, MD & Executive Director

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Conference Call Participants

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* Annick Tonie Maas

Exane BNP Paribas, Research Division - Analyst

* Catherine T. O'Neill

Citigroup Inc. Exchange Research - Research Analyst

* Fernando Cordero Barreira

Grupo Santander, Research Division - Equity Analyst

* Ivón Leal

BBVA Research SA - Research Analyst

* Lisa Yang

Goldman Sachs Group Inc., Research Division - Equity Analyst

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Presentation

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David Gómez Baquero, Atresmedia Corporación de Medios de Comunicación, S.A. - Director of IR [1]

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Hi, good afternoon. Welcome to this conference call in which we are presenting the first quarter results for 2020, as usual, leaded by Silvio González, CEO; also is in the conference call, Antonio Manso, CFO. He will -- Silvio González will start with the highlights of the period. And then we will move on to the Q&A session. So without further delay, we start with you. Thank you.

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Silvio José González Moreno, Atresmedia Corporación de Medios de Comunicación, S.A. - CEO, MD & Executive Director [2]

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Hello, good morning. I hope you and your families are well and safe, and please, go on, for the future.

Well, talking about the financials. The advertising market, the total advertising market has decreased by approximately 13% on a year-on-year basis. The decline in the advertising market is mainly due to the lockdown because of the COVID-19 crisis. In the markets that Atresmedia works, which is television, radio and digital, the performance has been as follows: in the television, the market has decreased by 12% and mainly because of the second half of March, which the decrease was something roughly 50%, so March, the whole month was down by 23%; in the case of radio, the market has decreased by 18%, and the effect of March was 35% minus; and digital market, it decreased by 4%, and the effect of March was minus 15%. So the market has had an incredible impact of the coronavirus in the second part of the month of March.

Coming to the TV viewing, in the first Q of 2020, we reached an average of 4 hours and 9 minutes per day per person. This is the whole first quarter, but if we focus on March, I mean, the audience rocket in March, and it reached 4 hours and 44 minutes per day per person. And if you go on through April, we have reached nearly 5 hours per day per person as an audience. The only BD is that there is no money backing this audience. So very good, very good results on audience, which I think is very important because, I mean, it sustained our idea that our business is very solid in terms of audience.

People follows our news, follows our entertainment and in this case, in the crisis, we have proved that we are by far the best choice for them. And also very significant is that when you split the audience between the different age groups, also the people in the younger ages has come to free-to-air television. So I think that's also the good area. It's not only elder people who watch television, but also young people comes to television to inform themselves about the crisis.

Talking about the audience shares of our different channels. As a group, we have delivered a total audience of 26.2% and the different channels as follows. Antena 3 has reached 11.7%. We are always talking about total individuals. LaSexta has registered an audience of 7.4%, which is one -- a little better than the previous quarter 2019. And the accumulated audience of our complementary channels has been 7.2%.

Coming back to financials. Total revenue for the group has reached EUR 223 million, which means a decrease of 13.2% on a year-on-year basis. And regarding the audiovisual business, total net revenue has been EUR 210 million, which means a decrease of 12.5%.

The market share of Atresmedia Television has remained at 42.2%, and we have had the highest power ratio of the industry with a result of 1.6. Our TV net advertising revenues has been EUR 180 million, with a decrease of 10.8%. The digital net ad revenues was EUR 9.5 million, with an increase of 1.8%, and the content production and distribution division has reached EUR 14 million, mainly affected by the different phasing of the different projects that Atresmedia Studios has in its pipeline.

About the radio activities, the total net revenue has been EUR 16 million, which means a decrease of 20%, pretty much in line with the decrease of the radio sector. Total OpEx has been EUR 187 million, which means also the cost-cutting of 11.7% on a year-on-year basis as it's mainly driven by programming and variable costs. The EBITDA for this quarter has been EUR 35.9 million. That implies a 70% EBITDA margin. Net profit has been EUR 21.7 million. Net debt, we finished the quarter with a debt of EUR 177 million, which is -- which means net EBITDA debt ratio of 1.01, which means that we are in a very good financial position.

So this is the main figures of financial and audience results. But I mean, this is the past, and it looks that it's very, very far away because, I mean, now we are facing a very different situation and a very different situation that is difficult to envisage which the future could be. We -- I cannot say we were surprised by the decline of the second part of March, but it's quite surprising that in just 15 days, the advertising market declined by 50%.

So what can we talk about the future? Well, what we can say is that April, it's also minus 50%, more or less, would be in that line. And the performance of May and the next months will depend very much on which -- of when the lockdown will finish and when the economical activity will recover. I mean, we are very much dependent on that.

We don't know what the future will be, but attending to the consensus, the market will be down between 15% and 20%. Well, we don't know what's going on, but what we are prepared is to try to offset the decrease in revenues in a big part.

We think that nearly 50%, we can offset that. And we have taken measures, and we have put in action plans. And I can tell you that we will have savings in the OpEx line up to 10% compared to the ones we had in 2019. So that's the actual -- how do we foresee the future and the measures we have already put in place. The question is, if the things go worse, are we flexible enough to go a little bit further in the cost cutting? Well, I do say that we could be. I mean, there's still room, not a lot of room, but there is still room in order to adapt to the market if the market is even worse than this decrease of 20%.

From the cash point of view, I think we are quite comfortable. We don't have any problems. And so we will not be under stress because of the financial positions. And we are just looking very closely to the market, talking a lot with the advertisers and trying to know their plans, when they will go on with the rebeginning of the activities. And well, so that's what I can tell you about the future is that we are prepared. We have already taken our -- the measures, and we are putting in plan all of them.

And well, if the market is in the line of consensus, I think that we are prepared to offset a big part of the decrease that we will suffer. So that's all I can tell you, and now we are open to your questions. Thank you.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question comes from Annick Maas from Exane BNP Paribas.

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Annick Tonie Maas, Exane BNP Paribas, Research Division - Analyst [2]

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Sir, my first one is more a clarification. So I think -- can you just confirm that you said you can cut your OpEx base by 10% this year? But my question, I guess, related to that is, that is taking which assumption for the TV ad market. So you said March was down 50%. April, I suspect something similar. But what are you now forecasting for the rest? Or what is the assumption for the rest of the year with that cost guidance, I guess?

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Silvio José González Moreno, Atresmedia Corporación de Medios de Comunicación, S.A. - CEO, MD & Executive Director [3]

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Yes, I confirm 10% cost cutting. And the assumption is that what the consensus is more or less in line that the advertising market will be down between 10% to 20% -- 15% to 20%. That's the assumption.

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Annick Tonie Maas, Exane BNP Paribas, Research Division - Analyst [4]

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Okay. Okay. Great. And then just -- so have you seen that some advertisers that might have cut spent mid-March have already now started to come back in May? And if so, can you please maybe tell us which sectors these are?

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Silvio José González Moreno, Atresmedia Corporación de Medios de Comunicación, S.A. - CEO, MD & Executive Director [5]

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Well, I mean, all-in March and April, all the sectors has performed very badly, except banking. But all the rest has done very bad because, I mean, everything is locked down. I mean, they don't sell anything, restaurants, bars, pubs, everything, cars, always closed. So they don't sell anything. We have tried to move the market, offering them the opportunity to make some brand communications, and some of them has done. But I mean, unless the economical activity began again, I mean there is a big question mark: When will they come back? We do think that with the new measures the government has announced, we have gone to the advertisers in order to see whether they -- how -- what's their feeling about the new measures. Also, we don't -- I mean, the government needs to clarify, which will be final impact.

We do think that by the second week of May, there will begin some activity. And so we will see that the market is, let's say, beginning to walk again. But it very much depends on this -- the deconfinement measures and which is the impact and how the advertisers feels it will impact on their businesses. So I think it's very soon -- still very soon to see when the things will begin to work again.

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Annick Tonie Maas, Exane BNP Paribas, Research Division - Analyst [6]

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Okay. Great. And then just one final one on the radio business. So I guess, more -- the cost savings that you now just announced, is that largely going to be in the TV business? Or can you also make some improvement in the radio business, which I guess, has a very high fixed cost base?

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Silvio José González Moreno, Atresmedia Corporación de Medios de Comunicación, S.A. - CEO, MD & Executive Director [7]

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The -- I mean, the radio is more or less -- it's having this more or less same performance as the television. We feel a little bit more optimistic in radio because, I mean, the -- as the government has announced, finally, the province, the unit where the lockdown is finished, I mean, there could be, let's say, more activity in the local side. So as you know, radio has more or less 50% coming from national advertising, 50% coming from local advertisers. If the end of the lockdown is by provinces, perhaps there could be a better performance in radio. And I mean, both television and radio will have their -- the more or less the same performance, and we have more or less the same flexibility in costs, both in radio and television, and we will apply the same measures in both businesses.

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David Gómez Baquero, Atresmedia Corporación de Medios de Comunicación, S.A. - Director of IR [8]

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Thank you, Annick. Can we go to the next question, please?

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Operator [9]

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The next question comes from Catherine O'Neill from Citi.

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Catherine T. O'Neill, Citigroup Inc. Exchange Research - Research Analyst [10]

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I have a couple of questions. One is on just what's happening between the different media in terms of the trends because TV seems to be down heavily, not just in Spain but across other markets, whereas the large digital platforms seem to be performing okay. I just wondered whether you think there's any share loss going on or shift of spend out of TV into digital that could end up being permanent. And secondly, could you just remind us of your covenants and whether you've had any discussions around the ability to relax covenants and things like that?

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Silvio José González Moreno, Atresmedia Corporación de Medios de Comunicación, S.A. - CEO, MD & Executive Director [11]

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Television and radio are performing, let's say, more or less the same with downfalls in the line of 50% to 55% and 60%. And I think the rest are suffering a lot. I think digital is also performing very bad with downfalls of something 45%. So I mean, this is affecting all the media in all the different worlds.

So television and radio is doing as -- perhaps it will be done a little bit better in the future when there's recovery. But I think all of us are suffering a lot because of the lockdown. I mean, there is no people consuming anything, they're not buying anything, and so there's no advertising.

And on the second questions, we do think that we could fulfill our covenants even in the first part of the year 2020. By June 2020, we will still fulfilling the coverages. But anyway, we will begin to talk with the banks in order to begin our conversation. It looks like if the market is minus 20% and even with our cost measures, there will be -- we will need to talk to them about the try to relax a little bit the covenants in order to not to stretch them.

But I feel pretty comfortable that not just because the result in 2020 will be not that bad, but also the scenario for 2021 with not very much recovery, we will be back to the right path. So I feel very comfortable. I mean, in this line, we have had some of our debtors that come to us in order to offer as much more money. So I feel really comfortable about that. I think cash will not be a problem at all. The relations with the banks are good. And so I don't think this is an issue at all.

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David Gómez Baquero, Atresmedia Corporación de Medios de Comunicación, S.A. - Director of IR [12]

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Thank you. Thank you, Catherine. We move to the next question.

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Operator [13]

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(Operator Instructions) The next question comes from Fernando Cordero from Banco Santander.

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Fernando Cordero Barreira, Grupo Santander, Research Division - Equity Analyst [14]

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It is related with the commercial policy during the first quarter. You have been not applying the discounts or the media buyers -- oh, sorry, the agencies premium. And in that sense, your main competitor has been applying that. That different commercial policy has been impacting the relationship with clients, the competitive position of different players. Are you seeing any kind of impact in the market from this different commercial policy?

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Silvio José González Moreno, Atresmedia Corporación de Medios de Comunicación, S.A. - CEO, MD & Executive Director [15]

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Look, I mean, so far, we have not had any impact on that. As you know, we are applying exactly the measures that the CNMC told us to do because they thought that it was illegal to pay these rebates to the media buyers, and we are just doing what we are supposed to do.

It is true that we all have presented an appeal to the court in order to solve that. But I mean, we don't have the results. Our policy is in order to be transparent. We don't want our media buyer to tell them that we are paying them the rebate the first half of the year or the first quarter, and after that, we cannot pay them because, I mean, the court finally decided that the CNMC has the right until the final decision of the court will -- which will take place in a 3 years' time or something like that.

So we prefer to be transparent. We prefer to have a clear relation with the media buyers. And so far, we are not having any impact because of the difference -- of the different policy. So there's nothing to say about that.

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David Gómez Baquero, Atresmedia Corporación de Medios de Comunicación, S.A. - Director of IR [16]

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Thank you, Fernando. Do you have more questions?

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Fernando Cordero Barreira, Grupo Santander, Research Division - Equity Analyst [17]

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No.

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Operator [18]

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The next question comes from Liu Yang (sic) [Lisa Yang] from Goldman Sachs.

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Lisa Yang, Goldman Sachs Group Inc., Research Division - Equity Analyst [19]

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I have a few questions, please. When you say that your OpEx will be down 10% this year, what are the assumptions you're making for the other revenue because -- and content production? Because I guess the cost there is mostly variable. That would be really helpful just so we can understand the drop-through in TV, radio as opposed to content other where obviously, the cost base is more variable.

The second question is on your pricing policy in the lockdown measures are listed. I mean, Mediaset Espana this morning, they talked about resuming their price increase of 2%, 3%. In Q1, your prices were down 13%. So yes, I'm just wondering whether you feel that you'll be able to raise prices again that quickly.

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Silvio José González Moreno, Atresmedia Corporación de Medios de Comunicación, S.A. - CEO, MD & Executive Director [20]

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About the first one is 10% as an average. So it includes everything. So you have the cost in 2019, you take up 10%, and you will have the cost of 2020. So everything is in it.

About the pricing policy, the point is that if you dig a little bit down in the minus 13%, it is mainly due to the mix -- to the marketing mix. I mean, the high-value type of advertisers, which we are leveraged on that, which means automobile, which is smart finance and telco, has been quite weak in that quarter. And so we have filled our inventory with beauty, health and all the low-cost type of value. In these cases, we have much more effective than our competitor.

But if you take out this marketing mix of customers, our prices has been down more or less in line to 3% to 4%. So we are pretty much in line with what we expected. And so we have not reduced prices in the negotiations with the customers. The final price is due to this mix of customers, which is different of what is normally in our grid in our inventory.

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Lisa Yang, Goldman Sachs Group Inc., Research Division - Equity Analyst [21]

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Okay. That's helpful. Can I just follow-up? So you said earlier, your OpEx is down 10% and you're assuming TV will be down 15% to 20%. But could you give us some assumption on how do you think -- what do you think will happen to content production and other revenue for the full year?

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Silvio José González Moreno, Atresmedia Corporación de Medios de Comunicación, S.A. - CEO, MD & Executive Director [22]

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I mean, about capital production, it's very difficult to say anything because, I mean, as you know, because of the lockdown, all the activities has stopped, and we need protocols in order to renew and reinitiate all the shootings and all the fiction and all that. And we -- I mean, all the industry is working together with the government in order to create a protocol that let us to begin the production of all these fiction and programs that were in the pipeline and now they are all stopped. So very difficult to say when things come back to, let's say, normality. We do think that by the end of June, something like that, we could begin the -- all the projects again, but it's like a crystal ball. I don't really know when. We do hope, and we are working for that, and we are working in a protocol and all that. But so far, it's very difficult to say when all these activities could reinitiate in the future.

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David Gómez Baquero, Atresmedia Corporación de Medios de Comunicación, S.A. - Director of IR [23]

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Thank you, Lisa. We move to the next question.

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Operator [24]

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Yes. The next question comes from Ivón Leal from BBVA.

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Ivón Leal, BBVA Research SA - Research Analyst [25]

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Easy one actually. It has been mostly answered. My question was about this content issue, you say probably is going to drop. Maybe just a bit more detail on that. Within the current situation, does demand for -- from third parties for content has increased, okay? Following up that very strong increase in Mediaset, I don't know if something has changed in the market. And the second one is, margins at this point are what you're expecting for the business or better or worse?

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Silvio José González Moreno, Atresmedia Corporación de Medios de Comunicación, S.A. - CEO, MD & Executive Director [26]

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For the content business, you mean?

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Ivón Leal, BBVA Research SA - Research Analyst [27]

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Yes, exactly.

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Silvio José González Moreno, Atresmedia Corporación de Medios de Comunicación, S.A. - CEO, MD & Executive Director [28]

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Yes, I mean, things have not changed. I mean, all we are working at was something that has already been contracted, is in the pipeline. And so we do expect the same margins as we had in the very beginning. So when we signed the project, we'd have maintained the margins so far. Yes, that could change. It could change if the protocol means that you have to make some extra security measures that could mean a real impact, a significant impact in the cost, but so far, we don't think that could happen.

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Operator [29]

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(Operator Instructions) Ladies and gentlemen, there are no further questions. I will now give back the floor to the company. Thank you.

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David Gómez Baquero, Atresmedia Corporación de Medios de Comunicación, S.A. - Director of IR [30]

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Thank you very much for your attendance. Just to wish you all the best. And if you have any other follow-up question, please contact the Investor Relations department. Thank you very much. Bye.