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Edited Transcript of TL5.MC earnings conference call or presentation 27-Apr-17 4:00pm GMT

Thomson Reuters StreetEvents

Q1 2017 Mediaset Espana Comunicacion SA Earnings Call

Madrid May 3, 2017 (Thomson StreetEvents) -- Edited Transcript of Mediaset Espana Comunicacion SA earnings conference call or presentation Thursday, April 27, 2017 at 4:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Luca Antonio Giammatteo

Mediaset España Comunicación, S.A. - Head of IR Division

* Massimo Musolino

Mediaset España Comunicación, S.A. - MD of Management & Operations and Executive Director

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Conference Call Participants

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* Fernando Cordero Barreira

Grupo Santander, Research Division - Equity Analyst

* Fernando Lafuente Seseña

Alantra Equities Sociedad de Valores, S.A., Research Division - Research Analyst

* Ivón Leal

BBVA Research SA - Chief Analyst of Portugal

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Presentation

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Luca Antonio Giammatteo, Mediaset España Comunicación, S.A. - Head of IR Division [1]

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Good evening, everybody, and welcome to the First Quarter 2017 Results Presentation of Mediaset España. I'm Luca Giammatteo, Head of Investor Relations. First of all, let me apologize on the huge delay. We had a problem with the [partner] of the CNMV, the stock exchange -- Spanish stock exchange regulator. And so we just received the numbers. If you didn't have time to watch the figures, Massimo will go through a short presentation highlighting all the main points, and then we'll have the Q&A session. We know there is another conference starting soon. I hope you can stay with us, otherwise -- I mean, it's (inaudible).

Massimo, over to you.

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Massimo Musolino, Mediaset España Comunicación, S.A. - MD of Management & Operations and Executive Director [2]

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Good evening. Welcome to our first year 2017 results presentation. We have just released our figures, and I will give you a quick run through of the main points. And then we will be move to the Q&A session.

This quarter, we have reconfirmed our leadership in audience share, and we have regained [sales] in advertising. We are the only with growth increasing advertising share. We have seen an increase over 0.6 points. We are improving our competitive position when compared to the second player in the TV advertising market. We have grown by 4.3%, as published by Infoadex. We are leaders even so -- even though our competitor has basically said in their presentation that we have lost.

Looking at our 2017 fiscal results in terms of financials. Our total net revenues were up by 4.2%, while costs were practically flat, down by 0.5 point. We achieved an adjusted EBITDA in excess of EUR 81 million, up by EUR 10 million, which is an increase of almost 15%. These results, roughly saying, a 53.8% (sic) [33.8%] margin over total net revenues and an increase of more than 3 points since last year. It is the second year in a row where we have achieved the target level of [60%] in the first quarter. We would be able to go back to 2008 in order to see an EBITDA margin higher than the one trough maybe this year. It's a slow ramp-up, which completes our outstanding operational leverage. Net profit for the quarter was EUR 60.6 million. The EPS is EUR 0.18, up 21% versus last year's. The net cash position at the end of the period was almost EUR 259 million. Free cash flow in the same period was EUR 79.4 million, almost 100% of the EBITDA.

We are very proud of these figures. These numbers show and confirm that we are one of the most profitable European broadcasters. As we stated in February, at the full year results presentation, we are improving our own figures and beating our personal basis. Our benchmark is our own folks' score. The comparison was tough in the quarter, but we managed to draw our results yesterday.

On the following page, we have the advertisers we had on during the first quarter. Total conventional advertising grew by 2.2%, while TV, the growth was 4.3%. More than 86% of the conventional market's total growth in the quarter was driven by free TV, EUR 17.5 million out of EUR 20 million. TV is the driver for the initial result on conventional market. And the driving point you see is, in the slide, during the period are (inaudible) pay TV to increase its share, as you can see on the left-hand side of the chart, by more than 1 point, 1.1 point and more over all the other media. The 4.3 increase, which you can see on the right-hand side, represents an improvement of the market evolution that we see in previous year, in which the comparison was tough due to a (inaudible) over 10%.

Moving now to Page 4. You can see the evolution of the group's advertising revenues, which amounted to EUR 225.5 million, as reported by Infoadex, an increase of almost 6%. Despite of all of the malicious rumors that were circulated in the market and eventually seem to be dispelled, we can see from our figures that our growth was driven by price increase. This increase of 7.5% are higher than the market average, contributing the (inaudible) that are floating around the marketing.

As per Infoadex, Mediaset España, 43.4% share. This (inaudible) results recorded in the [fixed] amount of last year, we weighted our sales force, introducing new policies and products. As you can see from the results obtained this quarter, we are seeing the fruits of our labor. The outcome is actually that we have achieved, the highest first quarter market share in the last 4 years.

Moving now to Slide 5. You can see the obvious share results for the first quarter 2017. As seen there, Mediaset España leads with 28.8 points, almost 2 points higher than the second player. By channel, Telecinco wins again, with over 13 point lead over the second channel. As you can see on the right-hand side of the page, our trend is positive. We started seeing the growth in January, and we are accelerating in line with the advertising market, allowing the company to save some costs during the period.

Focusing on which on the next page, you can see our cost performance since 2010. Costs at the end of March stood at EUR 161.7 million, practically flat compared to the same period of last year. During the first quarter for the last 7 years, we had managed our unit costs in such a way that the capital we were saving was some EUR 69 million, minus 29.8%. It was the lack -- it was really down to our hard work and business model. We have an intensive (inaudible) cost and production model. This permits our company to be more flexible in managing budgets. This flexibility is not just for the rate in input costs but also the cash flow management. In our world, we only produce what we really need for our channel programming, and we produce this content either live or very close with the broadcast date.

Looking at the chart on the next page, you can see the levels of in-house production at the end of March 2017. At the group level, we produced 45% of our total broadcasting hours internally. But excluding the dramatic channels, if we consider our 2 main channel, Telecinco and Cuatro, this number climbs to 81%. Last year, we decide to grow Cuatro's in-house production levels. And we are now seeing the results of this strategy. The evolution now of our second most important channel, really importantly, this quarter. The new strategy, with an increase of 14 points in in-house produced content, helped the channel to the deliver good audience figures, and permitted part of the quarterly savings.

Last but not least, profitability of the [group], which has always been our prime objective, in other words, being the most profitable leader is sustained, and it's one of the most senior officer will see the main target for us. Our first quarter 2017 EBITDA margin has increased more than 20 points, adjusted figures. We have recorded 33.8% margin over our total net revenues, which is the highest reported figures over the last 9 years. It's also one of the highest margin in all the other companies' figure in our segment. By the way, as shown on the following chart, the 33.8% margin over total net revenues is the highest record in any quarter since the first quarter 2008. If we specifically look at the trend since the first quarter 2012, we are 43 in [saving] correlation. Once again, this is due to our flexibility in terms of the operational leverage.

Net profit, on Page 10, as mentioned, stood at EUR 60.6 million, an increase in excess of EUR 10 million, plus 20.9% compared to the same period over last year. Earnings per share stood at EUR 0.18 in the first quarter.

Finally, our cash conversion capacity. As you can see on the last page of our presentation, we convert our operational margins into cash at the rate of almost 100%. If you look at what I like to call the prospect for the cash flow, an amount equal to the operational margin, as always and in line with our business model, the total increase in net revenues dropped with the operational profit, and the latter fully converted into cash.

And now for some final remarks. Quickly summarizing the main points of the period, we can say that the first quarter of the year has been very positive. At the end of March, our group was delivering audience share during day time and prime time in commercial targets. The advertising revenues had grown more than the market. This was driven by the sharp increase in prices. We managed to recuperate the lead over our main competitor, and we are again in the first position. We are leaders in audience and in advertising. And we achieved this without a mix (inaudible) and without spending more than the previous year.

The Internet and digital area have also shown excellent results, with advertising revenues more than double those of the market growth, whilst we gained the area of cinema has had a very positive result, confirming and reinforcing our position as content producers in a trending TV.

Our costs are flat and in line with our annual budget, confirming yet again our capability to control costs. The margin are showing double-digit kind of growth and reaching the highest levels over the last 9 years.

Free cash flow conversion from (inaudible) is close to 100%. And our net result in EPS is the highest since 2008 and more than double that our competitor is saying. We can therefore confirm at this point that we have made a strong start to achieving the annual targets that we set at the beginning of the year. At the end of a positive first quarter, we are leaders in audience share and in advertising market, the leader in profitability, and we have improved our whole results compared to the same period last year.

And we are now ready to take your questions. Thank you.

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Luca Antonio Giammatteo, Mediaset España Comunicación, S.A. - Head of IR Division [3]

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(inaudible)

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question comes from Ivón Leal from BBVA.

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Ivón Leal, BBVA Research SA - Chief Analyst of Portugal [2]

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Just maybe always bothered with the short-term trends. I don't know if you could tell us how it will finally close and what is your view on May. And the second one, maybe -- should we expect any negative impact to the overall advertising market given that there is no sports event this year? Okay, how do you look at that? And maybe the last one finally, there has been some knowledge in the U.S. and U.K. around advertisers pulling out of Google and YouTube. I don't know if you're -- you've felt any money in Spain coming from that impact.

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Massimo Musolino, Mediaset España Comunicación, S.A. - MD of Management & Operations and Executive Director [3]

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Okay. About the evolution of the second quarter this year, as we go through, as we said, the evolution of the advertising market (inaudible), with a decline of slightly over 10%. This evolution was almost or more or less in line with expectation. As everybody knows, this problem is mainly due to the resulted impact. But another factor that's affected the result in April was the tough comparison with last year. As you remember, last year, April grew by 25%. Even though the (inaudible) advertising spend the same amount of money, both in April and in May, this is an unusual situation. For that, we think the evolution of the market through the second quarter would be purely accelerating from negative to positive. Remember also about this whole experience that this evolution (inaudible). And in spite of having our biggest positive then, they forgot we still have the good way we handle (inaudible) month, positive month and year also. And in terms of the first indication from the negotiations with our clients confirms the positive trends in May. I don't have the full picture there for you we have figures to say, yes, a number around the increase in (inaudible). But we also can say we maintained our results (inaudible) of the result of the market here in 2017. And this advertising market figure, we have seen a lot of evolution as 2016. For that, I mean, [in terms] of supplies, it was okay. And (inaudible) and we have this information from the market that it's going to be early months.

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Ivón Leal, BBVA Research SA - Chief Analyst of Portugal [4]

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You -- could you put a number to that probably the...

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Massimo Musolino, Mediaset España Comunicación, S.A. - MD of Management & Operations and Executive Director [5]

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Growth.

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Ivón Leal, BBVA Research SA - Chief Analyst of Portugal [6]

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Growth remains? Okay.

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Massimo Musolino, Mediaset España Comunicación, S.A. - MD of Management & Operations and Executive Director [7]

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So fast. I can, but -- I mean, I have idea, of course, about this number. But generally, we are -- it's a competition, in case our (inaudible) network. And then I have my explanation. They have their own explanation. Then for that, and we are negotiating with some clients. But you can say that, for example, in Italy, some clients, they -- for example, [Pulse] and [Telcom] has delayed their campaigns to May and June. And we had the confirmation that they are going to start their campaigns in May and June because it's -- we have to consider that -- I mean, we have the Easter week, but the Easter week in the middle of the month is the worst place to have this event. I mean, the best positions are during the month in March. Okay. Let's assume it will be always the same day only for every year, but we do not control that, when we do that, it's in the middle of April and also it was a really strong year and month last year. And for that, I think the indication was the -- of the client, it's happening from April to May and June. And we are confident with May and June. And the other question was around (inaudible) Internet and this kind of (inaudible)?

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Ivón Leal, BBVA Research SA - Chief Analyst of Portugal [8]

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Yes. Exactly, yes. The question was there has been like some noise around some large advertising -- advertisers pulling out of Google platform and YouTube on the U.S. and U.K. So I don't know if you've seen similar trends in Spain so far.

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Massimo Musolino, Mediaset España Comunicación, S.A. - MD of Management & Operations and Executive Director [9]

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Yes, we've seen that, but there's money -- as we thought it be. But our Internet earnings increased considerably in March. And then we have more than double figures in March, I mean, really high increase in March, really doubled our Internet earnings. I think we don't know exactly why, but we came to like assume that advertising have changed their strategy in line of all those formats. And that's how we see trends on media. We see that. But yes, it was March. But I think the -- and in our -- these are -- there is our movement from -- to investing in a secure environment (inaudible)

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Operator [10]

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The next question comes from Fernando Lafuente from Alantra Equities.

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Fernando Lafuente Seseña, Alantra Equities Sociedad de Valores, S.A., Research Division - Research Analyst [11]

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Two quick questions. The first one a follow-up on the market. You said growth for 2017 in line with '16. Does it mean something between 5% and 6%, just to try of course to confirm? And secondly, on costs. This quarter has been extremely good quarter with cost per audience improving versus Q1, costs basically flat. What do you -- oh first -- how do you explain this? And secondly, what do you expect for the full year? Do you keep your cost to guidance or there is some room to improve it?

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Luca Antonio Giammatteo, Mediaset España Comunicación, S.A. - Head of IR Division [12]

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On costs, yes, first quarter we have seen the number pretty much in line with last year. Which is not a surprise, we were not expecting anything different on that. In the absence of any [inspection] (inaudible) or anything like that. We did not have anything like that in the first 3 months of the year. So it's nothing surprising, it's with what we had in mind. When we think about the whole year we don't have any reason to believe that this whole time we don't have any reason to change the guidance of EUR 770 million that we gave at the beginning of the year. So, so far we figure that number. As the year goes on and we have our [locations] if we think there is something that makes us change our mind we will do it, but at this time we find there is actually really nothing that makes us change the guidance we have already given.

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Massimo Musolino, Mediaset España Comunicación, S.A. - MD of Management & Operations and Executive Director [13]

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(inaudible) [17] we will like to give [our views] on such number. But we think that in the market this year we have a similar role for the evolution as to a good year for this year will be similar. Maybe one point more, one point less, we do not doubt, how that evolution will be similar. Of course, maybe anymore the comparison is harder this first part of the year. [And it is still an issue] the second part of the year. For that I mean, if you remember (inaudible) was really strong (inaudible) was really strong. (inaudible), and you like [they suffer] a lot last year. We think that the issue, the evolution -- the growth evolution will be more or less (inaudible) 2016.

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Operator [14]

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The next question comes from Fernando Cordero from Banco Santander.

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Fernando Cordero Barreira, Grupo Santander, Research Division - Equity Analyst [15]

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The first one is related with volumes in the first quarter, you are saying the presentation that volumes are falling 0.5% year-on-year. I just would like to know what are the performers is coming -- what would be the performance if we extract or if we take into account the contribution from your new channel, Be Mad. That is just to understand where the performance of Europe is organically [ex Be Mad]. The second question is related with your free cash flow generation and with your net debt performance and I would like to know -- I couldn't see debt in your cash flow and just to understand if there is any kind of [world] capital contribution either positive or negative in this first quarter of the year. And the third question is related with the breakdown of the (inaudible) market among the different sectors. According to the information given by your main competitor last week it seems that the sector is underperforming and were those all related with basic consumption, retail, beauty and so on. I would like to know if you have also experienced the same performance and if it is the case I'm considering that these sectors are the most linked to the product consumption, when we take, for example, the performance of the recent years. If it is the case, do you find any kind of reason or rationale to understand why these basic consumption sectors are falling year-on-year?

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Luca Antonio Giammatteo, Mediaset España Comunicación, S.A. - Head of IR Division [16]

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Free cash flow, Fernando, yes, if you have the number we have this year, which is plus EUR 79 million, we will see that with the working capital contribution which is very high. (inaudible) This is not anything new. It's exactly more or less the same as we had last year. And it's mainly due to a series of factors. The first one is that we have clients movement which is very favorable. Because of course the invoicing and sale of advertising in the last months of the year, of the last months of the year is always higher than what we have at the end of the first quarter and therefore, you have [a reaction] in terms of the amount used from your clients and that has the positive contribution. The second one is that as you will see when we look at the library, most part of the rights that we got in the year come in the first quarter. And that is nice that you have an increase in the supplies number. So we have less clients and we have more suppliers falling in the first quarter. So this is a seasonal impact that comes from there every single year. And that is why we have such a good number in terms of working capital, which like I said is a seasonal factor which we will be likely to see every time, every year in the first quarter. (foreign language) Massive sector (inaudible) we have a growth.

(inaudible) Because we have these further campaigns through May and June, but we won't see any particular (inaudible) sector. Maybe finance. It's really a strange sector for us, because we cannot get (inaudible) and we cannot focus (inaudible) business, because it's always looking at the last time, at the last moment. But we won't see any (inaudible). If fact, we'll keep an eye on (inaudible). There's not any set (inaudible) that we are really allowed. And the other question was about demand. I don't have here the exact (inaudible) of the DVDs but actually (inaudible) [0.5%] (inaudible) of that. I don't have this information here sorry.

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

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Okay, just a follow-up on volumes because my question are there any social plans at this time? And what are the reasons to see the outstanding performance of your market share in this first quarter particularly year-on-year? Because your increase is 0.6% -- percentage points, or 60 basis points year-on-year. And partially should come from the higher number of channels but if this 60 basis points in volume is coming from demand, you are still improving your market share year-on-year I could say changing during the (inaudible) trend in the recent quarters. I would like to know what is the reason it is intended to be available in other channels. It's a different commercial policy particularly on your main competitor, help to understand that. And how should we consider this market share gain or increase sustainable in coming quarters?

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Luca Antonio Giammatteo, Mediaset España Comunicación, S.A. - Head of IR Division [18]

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As we said in the last conference, we had some problems on clients in the last quarter of the year 2016. And have already solved this problem with these clients. Maybe (inaudible) in this quarter they are -- we are on the right track.

(foreign language)

We have [increased] our price more than our competitor. And these are a big contribution to our revenues. For that, we think in our market share that we are very (inaudible), and if you want to [do good there], you have to actually [want 43.3, 44.4] of (inaudible) share. And it's our goal. We feel that if we can do that (inaudible) have a champion. But I think we are going to overcome the situation, and we are going to (inaudible). And for that, we have to get the 43%, 44% (inaudible). Of course we have [time finishing] our commercial policy. (inaudible)

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Operator [19]

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(Operator Instructions) The next question comes from Lisa Yang from Goldman Sachs.

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Unidentified Analyst, [20]

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So first one, in Q2 I was wondering -- you spoke about the [target market]. Can you talk about the trends for yourself, what you're seeing [in demand] if it can still be posted given the tough comps? And then (inaudible). I mean you spoke about the trends you're seeing in the market for Q2 but can you talk about what you're seeing for yourself? Do you think you can still be positive given the tough comps [in different]? That's the first question. And then second, both you and your competitors have increased (inaudible) by 7% or more and [looping] the sustainable (inaudible) you're getting more pricing power in the market. And then finally, what is the level of inventory still out there? I think your competitors (inaudible) unsold inventory. I was wondering what that is looking like for you as well.

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Massimo Musolino, Mediaset España Comunicación, S.A. - MD of Management & Operations and Executive Director [21]

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About the price, our target is the (inaudible) increase 4%, 5%, 6% this year, in the whole year. I think [this system works] (inaudible) the [full price in here] is really far from the price that we had in 2007. And if we can do that, we can market [5%, 4%] (inaudible) into the price in the market (inaudible) year-over-year. The second question was the amount of volumes. In this market, the motivations really vary by pricings. I mean, we think that at the end of the year, 84% of the market (inaudible) comes for the pricings. And yes maintained 15% of our volumes (inaudible) from our numbers.

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Unidentified Analyst, [22]

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And then there's one more question for Q2 what are you seeing for yourself?

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Massimo Musolino, Mediaset España Comunicación, S.A. - MD of Management & Operations and Executive Director [23]

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(inaudible)

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Unidentified Analyst, [24]

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For yourself. Not for the market, but for yourself.

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Massimo Musolino, Mediaset España Comunicación, S.A. - MD of Management & Operations and Executive Director [25]

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Yes. (foreign language) For the second quarter, we need to achieve 33%, 34% of market share. (inaudible)

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Operator [26]

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There are no further questions in the conference call. We now hand over to the speakers of this conference call. Thank you.

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Luca Antonio Giammatteo, Mediaset España Comunicación, S.A. - Head of IR Division [27]

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Okay, that is end of the presentation. Thank you very much for attending it. Should you have any follow-up questions, call the investor relations department. (foreign language) Thank you very much and bye-bye.