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Edited Transcript of TVA.B.TO earnings conference call or presentation 1-Nov-19 2:00pm GMT

Q3 2019 TVA Group Inc Earnings Call

MONTREAL Nov 2, 2019 (Thomson StreetEvents) -- Edited Transcript of TVA Group Inc earnings conference call or presentation Friday, November 1, 2019 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Anick Dubois

TVA Group Inc. - VP of Finance

* France Lauzière

TVA Group Inc. - President & CEO

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Conference Call Participants

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* David John McFadgen

Cormark Securities Inc., Research Division - Director of Institutional Equity Research

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Presentation

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Operator [1]

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Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the fiscal 2019 third results conference call. Your host for today will be Ms. Anick Dubois, Vice President Finances, TVA Group Inc.; and Ms. France Lauzière, President and Chief Executive Officer. Ms. Dubois, please go ahead.

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Anick Dubois, TVA Group Inc. - VP of Finance [2]

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Good morning, ladies and gentlemen. Thank you for taking part in our call today. (foreign language) Let me remind you that certain statements made on the call today may be considered forward-looking statements, and we would refer you to the risk factors outlined in yesterday's press release and report filed by the company with regulatory authorities. I will now turn the call over to Mrs. Lauzière.

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France Lauzière, TVA Group Inc. - President & CEO [3]

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Thank you, Anick. Good morning. (foreign language) We are pleased with our results for this quarter and our financial year. Despite the many challenges we face, TVA Group grew its revenues, thanks to the various acquisition and the savings we made by the budget cuts we announced in the past month.

To begin with our Broadcasting segment, TVA Group's total market share was 38.3%, up 0.2 points from the same period of 2018. TVA Network held its #1 position with a 23.6% market share. TVA Network had 3 of the top 5 shows in Québec during the quarter, including the new hit drama series Alerte Amber, which drew audiences of more than 1.5 million. The dance show, Révolution is also as success, not only in Québec but in other markets, where the format has been adopted. In less than a year, on the international market, Révolution has already been sold to broadcasters in several countries.

The news activities also put through an excellent performance. I have to mention the great ratings for LCN and TVA's coverage of the Federal election campaign. Once again, we outperformed with our leaders' debate, which was, not only watched by over 1 million viewers in Québec, but became a strong reference for the rest of the campaign. We are also very proud of our election night coverage on October 21, which drew a peak audience of 1.5 million. We are the undisputed new leader and the numbers bear it out.

The Broadcasting segment's strong results were driven mainly by our specialty channel, which had a combined market share of 14.7% in Q3, up 0.3 points. The increase was due in part of the acquisition of Zeste and Évasion, which continue to have positive impacts on both our financial results and the range of our content offering. TVA Sports continued to perform well with a 0.4-point jump in market share during the quarter. LCN remained the most popular specialty channel in Québec with a 5.1% audience share.

While our specialty channels are performing well, the fact remains that they have been shortchanged for years on their fair market value. The subscription fees for our channels should reflect the audience share per subscriber. Although Bell still resists paying a fair price, we are pleased to report that we have renewed some distribution agreement with cable operators that recognized the fair market value of our channel.

Once again, the Magazines segment posted a positive result given the downward revenue trend in the industry. While the segment's operating revenue were down more than 20%, our various cost reduction and operational efficiencies initiative succeeded in protecting its profitability. Our goal is to focus our efforts on promoting our strong brand.

MELS numbers for the quarter were down from Q3 2019. Our soundstage and equipment rental services were affected by a downturn in what is cyclical industry. At the same time, our other services, notably Visual Effects are known and recognized by local and international producers alike and are attracting growing businesses volume.

Turning to our Production and Distribution segments, which includes the operations of the companies in the Incendo group. These segments were -- made positive contribution to TVA Group's financial results for the second consecutive quarter. In addition to diversifying our revenue streams and expanding our international presence, this acquisition will enable us to capitalize on the current strong demand for the production of our original content.

Thank you to all. I will let Anick review our financial results.

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Anick Dubois, TVA Group Inc. - VP of Finance [4]

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Thank you, France. I would like to outline the main following financial highlights for the third quarter results. TVA Group recorded operating revenue of $126 million in the third quarter of 2019, a year-over-year decrease of 1% or $1.8 million. Broadcasting revenues increased by 3%, essentially due to the addition of operating revenue from the Évasion and Zeste channels since their acquisition and 7% increase in the advertising revenue of the other specialty channels partially offset by a 4% decrease in TVA Network's revenue.

Magazine publishing revenues declined 21%, mostly due on a comparable basis, to a 21% -- 29% decrease in the advertising revenue, a 25% decrease in subscription revenues, a 7% decrease in newsstand revenue and the discontinuation of the publication of Elle Canada and Elle Québec magazines during the last quarter.

MELS' revenue decreased 13% in the third quarter due primarily to a 29% decrease in revenues from soundstage, mobile units and production equipment rental partially offset by revenue growth from Visual Effects, dubbing and subtitling. Our new Production & Distribution segments, created following the acquisition of the company in the Incendo group on April 1, 2019, add $3.1 million revenue in the third quarter results.

TVA group's EBITDA reached $31 million for the third quarter, an increase of $3 million or 11% compared to the same quarter last year. Our Broadcasting segment reported positive EBITDA of $21.5 million, a positive variance of $4.5 million; the Magazines segment recorded EBITDA of $2.9 million, up by $0.8 million; while MELS segment posted EBITDA of $6.5 million, $2.6 million lower than last year. Our new Production & Distribution segment made a positive contribution of $0.3 million EBITDA to our quarterly financial results.

Operational restructuring cost and others of $0.4 million in the third quarter of 2019 is due to operational restructuring cost in connection with staff reduction and business acquisition cost. Finally, the Corporation declared a net income attributable to the shareholder of $13.4 million or $0.31 per share compared with the net income of $14.4 million or $0.33 per share for the third quarter of 2018.

This concludes the official portion of our conference call. We will now be pleased to answer your questions. Operator?

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Questions and Answers

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Operator [1]

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(Operator Instructions) Okay. So the next -- first question comes from David McFadgen from Cormark.

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David John McFadgen, Cormark Securities Inc., Research Division - Director of Institutional Equity Research [2]

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A couple of questions. Just on TVA Sports. So you talked about the fact that you renewed some of your affiliation agreements with some of the cable operators and you're getting a higher sub fee there. I was wondering if you could tell us which cable operators have agreed to pay you higher sub fee. And just kind of wondering if you can give us any idea on the sense of the magnitude in terms of what incremental revenue it'd be, and when would this -- when do these new affiliation agreements kick in.

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France Lauzière, TVA Group Inc. - President & CEO [3]

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Yes. Most of the agreement are now -- we have an agreement with most of the cable distributor. As you know, we don't have any agreements with Bell right now, but I can give you the list of all the agreements we have. But I can tell you that most of the cable distributors have an agreement with us. And all those cable distributor recognize the fair value of our channel and this is what we have included in the financial results of the third quarter.

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David John McFadgen, Cormark Securities Inc., Research Division - Director of Institutional Equity Research [4]

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So when did these new affiliation agreements start?

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France Lauzière, TVA Group Inc. - President & CEO [5]

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It depends on the end of each affiliation agreement. So most of them was issued since a couple of months, but most of them are in place right now. So you have the positive impact on the -- in the actual quarter.

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David John McFadgen, Cormark Securities Inc., Research Division - Director of Institutional Equity Research [6]

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So the impact from those new agreements is seen in the Q3 numbers here?

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France Lauzière, TVA Group Inc. - President & CEO [7]

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Yes.

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David John McFadgen, Cormark Securities Inc., Research Division - Director of Institutional Equity Research [8]

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Okay.

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France Lauzière, TVA Group Inc. - President & CEO [9]

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But again, we are still waiting to have an agreement with the major cable distributors.

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David John McFadgen, Cormark Securities Inc., Research Division - Director of Institutional Equity Research [10]

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Yes. What's the latest with that? What's -- can you give us an update on that?

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France Lauzière, TVA Group Inc. - President & CEO [11]

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Can you repeat your question?

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David John McFadgen, Cormark Securities Inc., Research Division - Director of Institutional Equity Research [12]

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What's the latest with that, in terms of your negotiations. Where are you at with them?

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France Lauzière, TVA Group Inc. - President & CEO [13]

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We are still in negotiating, and we are right, now in the mediation and the CRTC is helping us through that process.

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David John McFadgen, Cormark Securities Inc., Research Division - Director of Institutional Equity Research [14]

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Okay. So you're still in the middle of a mediation with the CRTC on this on the its affiliation agreement?

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France Lauzière, TVA Group Inc. - President & CEO [15]

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Yes. Yes.

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David John McFadgen, Cormark Securities Inc., Research Division - Director of Institutional Equity Research [16]

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Okay. Any idea on timing when this could actually be resolved, or...

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France Lauzière, TVA Group Inc. - President & CEO [17]

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No. Not for that moment.

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David John McFadgen, Cormark Securities Inc., Research Division - Director of Institutional Equity Research [18]

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No? Okay. All right. Because it doesn't look like there was a much of a positive impact from these other cable distributors, given the sub fee for TVA Sports was down in the quarter, right?

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France Lauzière, TVA Group Inc. - President & CEO [19]

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So there is many factor in the result of TVA Sports for the quarter, but again, and there is 2 major things we are waiting to actually resolve is the distribution of TVA Sports with Bell and also the and the (inaudible) preference that we are looking to resolve as well. So this is 2 major thing for us to be able to improve the result of TVA Sports.

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David John McFadgen, Cormark Securities Inc., Research Division - Director of Institutional Equity Research [20]

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Okay. Can you give us an idea on MELS? I mean, it's down year-to-date. I was just wondering, do you think that for 2019, the business could actually report some growth?

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France Lauzière, TVA Group Inc. - President & CEO [21]

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As you know, the decrease in MELS' result is mainly due to the studio activity ramp again fall right now. This is a tougher year for MELS and this is a cyclical business. So most of the time, we have one good year following by a year with a less activity volume. We are in this kind of year right now. We don't have any blockbuster in 2019.

However, given the growth in the market right now, regarding the demand for the content production, we are very optimist for next year. We already have some discussion with major producer. So the beginning of 2020 is very positive for us. And it's also important to recognize that other than the service activity, the studio rental activities, all the other segments of the MELS segment are doing pretty well compared to last year.

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Operator [22]

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All right. We don't have any other questions in the queue at this time. (Operator Instructions)

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France Lauzière, TVA Group Inc. - President & CEO [23]

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Nothing else?

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Operator [24]

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No. Nothing yet. (Operator Instructions)

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France Lauzière, TVA Group Inc. - President & CEO [25]

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So thank you to all, and talk to you next quarter.

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Anick Dubois, TVA Group Inc. - VP of Finance [26]

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Thank you.