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Edited Transcript of A3M.MC earnings conference call or presentation 24-Oct-19 11:00am GMT

Nine Months 2019 Atresmedia Corporacion de Medios de Comunicacion SA Earnings Call

San Sebastián de los Reyes Oct 28, 2019 (Thomson StreetEvents) -- Edited Transcript of Atresmedia Corporacion de Medios de Comunicacion SA earnings conference call or presentation Thursday, October 24, 2019 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

* Richard Eary

UBS Investment Bank, Research Division - Executive Director and Head of European Media Team

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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 9 months of 2019 results. As usual, conference call will be hosted by Silvio González, who will go through the main highlights of the period, and then we will move into the Q&A session. So without further delay, please, Silvio.

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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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So good morning. Let's begin with the advertising market. And according to external sources, you can see that the advertising market, as an overall, has been down by 3%. And talking about the relevant markets for Atresmedia, this is the television, advertising market is down by 6% during the first 9 months. It is true that if you take out the effect that we have here with the World Championship and the Champions League, which could mean something like 1 point, 1.5. So in a like-for-like, the market will be within 4.5% and 5% down. Also, what you should take in consideration that possible negative effect of the political elections, that, as you know, in Spain, there is no money for television and affects the advertising of the other sectors.

Talking about radio, the radio has been positive by 2%, more or less, and digital has -- is growing by 9% on a year-on-year basis. Talking about audience, our group, Atresmedia, has delivered a total audience of 26.5%, in line with last year, despite the absence of the UEFA Champions League. And talking about commercial targets, as you know, is the one we sell to our customers. Our audience has been 28% versus 28.3% last 9. So very much like last year.

Talking about the different channels, Antena 3 has reached 12%, which is more or less the same figure as we got in last year, which was 12.2%. And talking about laSexta, the audience of laSexta has been 6.9%, which is a little bit better than last year, 0.1% better than this year, and we have increased the gap with our most direct competitor, which is Cuatro, and now it's 1.6 points of gap between Sexta and Cuatro. And the audience, the accumulated audience of all the other channels is -- has been 7.6%. So that's about market and audience.

Talking about the P&L, total revenues for this period has been EUR 724 million, which means a decrease of 3.2%. And regarding just to the audiovisual business of the group, the total net revenues has been EUR 672 million, which means a decrease by 3.5%. Atresmedia Television market share has grown a little bit by 30 basis points and has come up to 41.2% with about a ratio of 1.6%. Our television net revenues, advertising revenues, has been EUR 560 million, which means a decrease of 6%, pretty much in line with the market decrease. Digital net revenues has come up to EUR 33 million, which means an increase of 8.1% compared with the same period of 2018.

Talking about the content production and distribution division, has come up to EUR 51 million, which means an increase of 5.1%. This increase is mainly driven by the program delivered by Atresmedia Studios productions.

Radio. Radio activities, net revenue of the radio business has been EUR 59 million, which means an increase of 0.6% compared with last year, which is a little bit below of the performance of the market, which has been an increase of 2%, mainly due to the poor -- let's say, poor performance of the musical -- of our musical format.

Total OpEx for the group has been EUR 597 million, so which means a decrease of 4.2%. And of this decrease, this decline is mainly driven by our -- of the saving -- of saving programs we put in action in the very beginning of the year when we began to acknowledge that the market was performing worse than we expected. So with these two revenues and costs, EBITDA for this period has reached EUR 126 million, which means an increase of 1.9%. That implies an improvement in our EBITDA of 90-plus basis points, up to 17.5% versus 16.6% what we obtained in the 9 months of 2018. And this is despite of the weak environment of television mainly.

Net profit has been EUR 80 million, which means a decrease of 6.8%. We can explain to you later. So net debt, at this period, finished with EUR 179 million versus the debt we had at the end of December, EUR 231 million, which means that the ratio between net debt and last 12 months EBITDA is 0.95%. And the free cash flow for this period has been EUR 119 million, which means more or less that we obtained 95% of the EBITDA, we convert that in cash.

And so this -- I think this is the highlight of results of the company in this period. And now we are open to your -- yes. Well, I was reluctant to talk about guidance because, I mean, difficult to talk about them. What we think is that for television, we expect November and December to be -- I mean, October will -- it looks like it will be down by 4% more or less so far in television. We're talking about television. And we do hope that November and December will perform more or less as October. So we expect that the last quarter of the year, the market will be down by 4%, something like that.

We do think that radio will be -- will perform in line with what it has done in the year, so with an increase of 2%. And we do think also that digital will do as it has done on the first 9 months of the year. So we do expect television to be minus 4% for the quarter, radio to be plus 2% for the quarter and digital to be plus 9%, 10% for the quarter also. So there is -- I mean, it's a change compared with the 6 -- minus 6%, talking about the [results] of the previous month, but not very -- not much better than this figure.

I think that talking about television, we can -- we will do a little bit better than the market, in line or a little bit better than the market. So we'll be down by 4%, a little bit less than that. And so that's what we foresee for the television. In digital, we do think that we will do -- as we have said for the year, that is being a little bit better in the market. In fact, it's something like plus 9% to 10%, and we are doing something plus 13% plus. And we could go the same path. And radio, more or less the same performance as we have had in the first 9 months of the year. And then talking about content production and distribution, we will achieve a high single digit as we have done. So I mean, and all the new products are in the pipeline, so we cannot expect a significant effect on the P&L.

And talking about the OpEx. Well, my last guidance was that OpEx will be at a level of EUR 845 million. And well, I should say that now, the new guidance for the whole year is that the OpEx will be in line between EUR 835 million and EUR 840 million, which means nearly EUR 30 million less than the original guidance we gave you at the beginning of the year.

So all in all, I think that we will be very much close to the EBITDA consensus, which I have read, is EUR 180 million. So all in all, I think that we will be very close to that figure.

And that's all. So 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) Thank you. The first question comes from Annick Mass from Exane BNP Paribas.

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

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So my first question is on the new OpEx guidance. Just -- I mean, if I just put the trends that you've had year-to-date on the OpEx space, and I would put it on a full year basis, your OpEx space would actually be much lower. So is there any reason why you keep this still wider cautious OpEx guidance for the full year? And then also, can you have already an idea of where do you see OpEx to be for next year?

Then my second question is on the TV ad market. So you said you expect to outperform the market in Q4. Is there any reason why -- or what is driving that confidence? And finally, can you repeat the content guidance for Q4, please? I didn't hear it well.

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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 mean, talking about OpEx, my new guidance, which is between EUR 835 million and EUR 840 million means that last quarter will be flat. That it is because, I mean, you know that all the -- most of the savings comes out of programming, and it's a problem of where is the weight you put it in the decrease of the cost. And so in the fourth quarter, we will maintain the, let's say, the weight we had in the very beginning. And so there will not be a further increase -- further decrease of cost on top of what we have done in these previous months.

About the next year, I mean, I can't -- I couldn't disclose you anything, but I mean, we just first of all, try to consolidate the reduction we have done in this year, which is, I mean, it's not an issue. And also, looking at which will be the -- our strategy for the future, and which would be the new market for the year. So I cannot disclose you which will be the cost structure for the -- for 2020.

And the other question was -- well, first of all, because, I mean, we think we will beat the market, first of all, because we have been in the market in the first 9 months. So I don't see why we should not do the same thing. And I think that because our approach to our customers in the commercial should be as good as we have been in the future. So that's why I think that we will beat the market. We will not be -- I think that if the market is something like minus 4%, we will be something on minus 3.5% or something like that. So it's not very significant. That I think that we could go on with the path that we have had in the past, which is beating the market by a small margin. So that's why I think that.

Now the last, fourth question was about...

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

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On the content guidance. I just didn't hear the content guidance that you guys had for the content line.

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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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I got the content. I mean, there should not be any significant increase in the fourth quarter. I mean all the product has been delivered. So we are just in the middle of the production of the new formats. And so there will not be a significant impact on the P&L.

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David Gómez Baquero, Atresmedia Corporación de Medios de Comunicación, S.A. - Director of IR [6]

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Thank you, Annick. We'll go to the next question.

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Operator [7]

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

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

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I think we have one more question. Can we go to the question please?

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Operator [9]

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Ladies and gentlemen, we have a question from Richard Eary from UBS.

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Richard Eary, UBS Investment Bank, Research Division - Executive Director and Head of European Media Team [10]

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I have 2 questions from my side. Just looking at the actual pricing outcome in the third quarter, which is minus 6%, and I think for the first 9 months, it's been minus 2%. I mean can you just sort of try and help us understand what's happening in terms of pricing within Spain? We've seen -- if you look at CPM inflation, it's been positive in the U.S. in markets like Nordics, where Nordic Entertainment, too, had a positive pricing in that environment in the third quarter. You talked about changing your sales approach at the start of the year, end of last year. So I'm just keen to understand where do you think pricing goes, particularly given how cheap TV is as a medium in Spain relative to, let's say, other markets. So that's the first question.

The second question was just on clarity, you said minus 4% TV now in the fourth quarter but you expect to outperform. Is the 4% your number? Or is that the market number?

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David Gómez Baquero, Atresmedia Corporación de Medios de Comunicación, S.A. - Director of IR [11]

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Do you have more questions, Richard?

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Richard Eary, UBS Investment Bank, Research Division - Executive Director and Head of European Media Team [12]

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Just 2 questions.

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David Gómez Baquero, Atresmedia Corporación de Medios de Comunicación, S.A. - Director of IR [13]

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Okay.

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Silvio José González Moreno, Atresmedia Corporación de Medios de Comunicación, S.A. - CEO, MD & Executive Director [14]

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Yes. I mean the minus 4% is the market number.

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Richard Eary, UBS Investment Bank, Research Division - Executive Director and Head of European Media Team [15]

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Could you expect to do better than that?

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Silvio José González Moreno, Atresmedia Corporación de Medios de Comunicación, S.A. - CEO, MD & Executive Director [16]

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Yes, a little bit better -- slightly better. About pricing. I mean, the point here is that once the -- as you know, the pricing is a mix of which are the TV consumption and which is the sectors that are involved in the market. And in this case, the problem in the Spanish market is, let's say, the high-value customers has decreased their investment. And so the low-value customers has increased their presence. So as an average, the pricing is lower, not because the pricing policy has been of -- decreasing in the negotiation process and because of the type of the customers.

If you take this effect out, so in a like-for-like basis, pricing is more or less stable. So no decrease, no increase. The point is that because of the automobile and finance are -- has decreased and has lost the presence in the market and has come up some other customers which are lower pricing type of customers, that is why the price looks at as lower. But it's not because of the pricing policy, which has been stable. So on a negotiation basis, the price is stable, that because of this, the price has decreased, as you have said.

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Richard Eary, UBS Investment Bank, Research Division - Executive Director and Head of European Media Team [17]

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Have you not been trying to put through price increases as we've seen in other markets? Or is there just not price tension to allow you to do that?

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Silvio José González Moreno, Atresmedia Corporación de Medios de Comunicación, S.A. - CEO, MD & Executive Director [18]

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No. I mean, of course, we -- of course, we try to do that. But at the same time, selling on a Q-o-Q basis is also affected by TV consumption. And we have experimented a decrease of TV consumption on the range of something like 5%, 6% as an average for these 9 months. And so that's also over year increased pricing. And because of this, what the final result is negative for us. Of course, we are trying to increase pricing, and we are in that level.

We also suffer from something which is all this bidding process that the customers do with the media buyers. And that they accept -- and they offer at very low prices in all the different sectors. And because of that, we have had a lot of problems with customers like [that take less], all that because I mean, they had agreement with the media buyers trying to get a decrease of TV, something in the range of 20%, 25%. And we have been able to overcome that, that don't help the sector because of that. And they are in a fight to get customers, and they are the ones who pushed the market down. We tried to overcome that, and we get that. But at the end, the prices are stable, taking this effect out. Thank you.

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Richard Eary, UBS Investment Bank, Research Division - Executive Director and Head of European Media Team [19]

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Can I just ask sort of a follow-up? As we go into 2020, how do we drive price inflation back into the system? Because if linear declines continue, you mentioned consumption is down 5% to 6% for the 9 months based on the Infoadex numbers. If we have stable prices that we've got this year, and we get another decline of 5% to 6% next year, bear in mind that we have probably more content offerings in market and you can't drive price increases. Are we going to get another 5% to 6% decline in TV now? And if that's the case, how are you going to be able to continue to take out costs to offset those declines? So the pricing equation is the key to basically try and hold earnings.

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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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Yes. It's -- we cannot give you any light about that because, I mean, we are just trying to foresee what's going on in the market, what are the customers trying to do and which are the approach of -- for the customers to the new year. So we are -- we cannot get into that. It is true that, I mean, I think that this minus 6% is a little bit aggressive. I don't -- I mean, personally, I don't think that, that's something to happen. But I cannot anticipate anything at this very moment because, I mean, we are just in the medium of the budget process. And so we need to think and get information from third parties about the marketing budgets and how can we face the situation, the new situation.

So I mean, you should wait a little bit until we can get you any information which is a little bit reliable. I don't think this reliable -- these sources about minus 6% is reliable at all. Something like, this has been the behavior of the performance of the market last 9 months, so this will be for the rest of the year. If it will be positive by 6%, it will mean that the rest of this year would be positive by 6%. I think it's not very -- it's not very professional, not very sophisticated way of making a full view of the market. But no further light can we provide you. Thank you.

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Richard Eary, UBS Investment Bank, Research Division - Executive Director and Head of European Media Team [21]

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Can -- sorry to -- can I -- because I presume there's no other question. Can I ask another follow-up? Is that -- if we assume that the major sectors like autos, food, beauty, beverages are still weak as we cycle into 2020, is there enough demand from local advertisers to fill that hole to try and create some price tension? Or is the local advertising relative to national advertising just very small and the pricing is obviously low as well?

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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 I cannot give you an answer because, for example, automobile is doing well in October. So why should not this happen in the rest -- for the rest of the year in 2020? So things are not that we see. And at this very moment, we cannot give you more color about the situation.

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Richard Eary, UBS Investment Bank, Research Division - Executive Director and Head of European Media Team [23]

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And is there any reason why auto is a turn positive in October? I presume you said that is...

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Silvio José González Moreno, Atresmedia Corporación de Medios de Comunicación, S.A. - CEO, MD & Executive Director [24]

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Yes. I mean, the reason is that they are selling a little bit more. It is true that the market, the automotive market has been very low, and we do think when talking with them is that the government's saying that they would forbid the diesel automobile in Spain in, I don't know, in 2040, they created a serious concern in the consumers. And so they didn't know which car was the best to buy. And the market was very weak in the first 9 months. And it looks like because, I mean, things are a little bit settle at. Now people is going back and buy cars again because, I mean, it looks like October is going -- is doing a very good month.

So I think the recovery of the automotive sector is very much dependent on the sales they are doing. And the first 9 months were weak, and now it looks that they are a little bit better. So I think that's a key. If people began to again buy cars, well, the sector will promote their cars again. And there will be an important sector as they are in the market and very much for us because, I mean, there's a high value type of customer. So that's the reason. Thank you.

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David Gómez Baquero, Atresmedia Corporación de Medios de Comunicación, S.A. - Director of IR [25]

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Thank you, Richard.

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Operator [26]

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

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David Gómez Baquero, Atresmedia Corporación de Medios de Comunicación, S.A. - Director of IR [27]

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Well, yes, thank you very much for your attendance. And if you have any follow-up questions, please contact the Investor Relations department. Thank you very much. Bye.