Atresmedia Corporacion de Medios de Comunicacion SA

MAD:A3M

Earnings Call Transcript 2018-Q1

[David Gómez Baquero, Director of Investor Relations]

Hi, good afternoon. This is Baquero speaking. Thank you to attend to this conference call in which we are presenting the first quarter results for this year, 2018. As usual, Silvio González will give you some highlights of the period. And we'll host the Q&A session together with Antonio Manso, CFO.Well, yes, without further delay, I hand over to Silvio.

[Silvio José González Moreno, CEO, MD & Executive Director]

Hello. Thank you, David. Good morning to you all. Let's begin with the conference call of the first quarter results. Beginning with the market, let's see that is for this first quarter, the total advertising market had decreased by 3%. And talking about TV, the market has been down by near 5%. Remember that we -- this quarter includes Easter. And if you take out this effect, the decrease will be something like 1.5%. Radio market was more or less flat compared with the first quarter of last year. About -- talking a little bit about audience. Atresmedia is a [ indiscernible ] -- delivered a total audience of 26.8%, which -- it comes to 28.8% if we talk about Commercial Target.In prime time Commercial Target, we were a leader with audience share of 29.9%. It was for the group. And if we talk about the different channels, Antena 3 reached 12.5%. In Total Individuals, laSexta registered an audience of 6.7%. And it even widened the gap compared with the main competitor, which is Cuatro in this case. And there are what we call the [ indiscernible ] channels, the Neox, Nova, MEGA and Atreseries, altogether increased the audience by 0.2%, which means that the total audience was 7.6%, which is the highest among all Commercial players.And coming down to the Atresmedia results. And let me [ indiscernible ] said, we have changed the way that we report the activities in order to provide a better and -- more and better visibility in areas such as digital, and content production and distribution, which are gaining traction and we'll gain more relevance within the company. Also, a small change has been included in OpEx so that now we can all follow which costs are variable and that's which are dependent on sales, so we have a better and clear visibility of our financial stakes.So coming to the financial results. Total revenue for the quarter has come up to EUR 252 million, which means a decrease of 2.7%. And if we exclude Smartclip, the total revenues declined by 5%. And regarding the audiovisual division, the total net revenue has been EUR 236 million, which means a decrease of 2.6%. Television roughly maintained their market share, figure nearly 43% and the power ratio has been 1.6. So the television net advertising revenue declined in line with the market to EUR 204 million, which means a decrease of 5.2%. The detailed net audiovisual revenue trickled due to the incorporation of Smartclip and due to the Atresmedia perimeter.In content production and distribution, higher content sales offset seasonal effect of cinema print release. Revenue at this division grew by 2% and came up to EUR 17 million. Others decreased by EUR 1.5 million due to the new rates scheme of music rights.Within the audiovisual division, it's worth mentioning 3 new initiatives launched in first quarter '18, which enhanced our strategic position. And I'm referring to the launching of our 4th international channels, Atreseries -- beg your pardon, launching of Atresmedia Studios, our own production company, and the social -- the agreement with Mediaset, MTV in order to launch a joint OTT by the end of this year.Regarding the radio activities, rev -- the revenues declined by 3% up to EUR 19 million.Talking about OpEx. OpEx has dropped to EUR 219 million, which means an increase of just 0.5% year-on-year. That excludes -- including Smartclip -- if you exclude Smartclip, OpEx went down by 2.2%. And that's the main thing about OpEx.EBITDA reached a level of EUR 33 million, mainly affected by the audiovisual, that the revenues of the first quarter. Net profit has been EUR 21 million, EUR 7 million below the first quarter of last year.Talking of net debt. Has been reduced EUR 53 million versus December 2017. And that implies the net debt at this moment of EUR 187 million, which is 1x net debt compared with the last 12 months EBITDA. The operating cash flow was EUR 74 million, which points out a high cash conversion rate.And talking about -- on a general meeting, we had yesterday, we have approved, as proposed by the Board of Directors, the final dividend payment of EUR 0.30 per share to be paid in June 2008 -- 2018 sorry.And so if we talk of main highlights of the first quarter, which -- the main thing is that this first quarter of 2018 compare -- it's difficult to compare with the one in 2017 because of the -- of Easter which is in March this year and it was not in 2017. So I think for clear vision, we need to finish April, so we this 4 months' clear vision, we can see what's going on and how can we envisage the future. Because in this very moment, there's a lack of visibility to talk any more about that.But now we're open to your questions. So feel free.

[Operator]

[Operator Instructions] The first question comes from Annick Maas from Liberum.

[Annick Tonie Maas, Analyst]

And my first question is on pricing. I think I remember that you mentioned last time that you think you could grow pricing easily by 2% to 3%. Now they are down quite significantly. And your competitor seem to suggest that this is, I mean, that March was a big contributor that. Can you maybe explain what's going on with pricing? If you maybe can isolate the months or what are you seeing in April in terms of pricing, that would be great?

[Silvio José González Moreno, CEO, MD & Executive Director]

Yes, about pricing, that to the point that March is affecting pricing. It's true that the market is very competitive. That April so far we think prices will go up in the range of 3% to 4%. So that's why I should say that we can maintain the guidance of price increase of 2% to 3% for the whole year.

[Annick Tonie Maas, Analyst]

Okay. And then my second question is just, so I understand you generally don't want to give guidance on the quarter -- on the months sorry, but could you maybe tell us what the first 4 months TV advertising market has done in your view?

[Silvio José González Moreno, CEO, MD & Executive Director]

I mean, so far, we do see now that April will be in the very high single digits. We can even say that even touch the 10%. It depends on the weather. Because I think we know there are some beverage companies that will -- that have campaigns scheduled for April. And it depends on which is the weather. I mean the weather is being not that good in Spain this moment. That shows -- it's being now a good month. And so that's why, I mean, we see prices up by 3% to 4%. And that's why I say that we could maintain the guidance of 2% to 3% price increase for the whole year.

[Annick Tonie Maas, Analyst]

And so my last one is just, so can you just tell us where are prices now versus previous session of it? So how much more is there to go to get to pricing where it was previous session?

[Silvio José González Moreno, CEO, MD & Executive Director]

Excuse me. Well, we do think that we are -- prices are 30% below the peak level that we obtained in 2017. That was your earlier question?

[Annick Tonie Maas, Analyst]

Yes, that was it.

[David Gómez Baquero, Director of Investor Relations]

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

[Operator]

The next question comes from Laurie Davison.

[Laurie Davison, Research Analyst]

This is Laurie from Deutsche. And so first question just to, so if April up high single-digit to 10%, then that implies the first 4 months for the market is down somewhere around about 1.5%. Do you agree with that type of math, is that type of quantum for the first 4 months? Secondly, Mediaset España was confident that the second quarter growth would be sufficient to offset that decline, for the market this is. So do you agree with that? Those are my first 2 questions.

[Silvio José González Moreno, CEO, MD & Executive Director]

You're right about the -- in terms of the first 4 months. I mean it will be -- even if they grow, it's around 10% for the first months -- for the first 4 months and again market will be down by 1% roughly. And about the second question, of course, you should not expect, we are talking about June and they will have half of the World Championship. But anyway, I mean, we should expect that this is a very strong quarter for advertising. And so we do expect that we could recover part of the gap we have in the first 4 months, yes.

[Laurie Davison, Research Analyst]

Sorry, so you can recover part of it or you're going to recover all of it? So do you think the market will still be up over the first half?

[Silvio José González Moreno, CEO, MD & Executive Director]

I think that we could be -- slowly, I mean, likely possible by the end of June.

[Laurie Davison, Research Analyst]

Okay. And the follow-on from that is just about the second half. The comps are slightly tougher in the second half. Do you also anticipate some portfolio of spend this year into the first half because of the World Cup from advertisers?

[Silvio José González Moreno, CEO, MD & Executive Director]

Well, the point is that last year, if I remember, well, there was an increase of 2%, which is -- so the comparisons are not that tough. So that's why I actually expect that the second part of this year could be better than that. Because I mean, we do expect that some of those sectors that are recovering that will -- they will show up at that part of the year.

[David Gómez Baquero, Director of Investor Relations]

Thank you, Laurie.

[Operator]

The next question comes from Julien Roch from Barclays.

[Julien Roch, Managing Director and European Media Analyst]

Yes. My first question is, could you confirm your full year operating cost guidance? I don't think you mentioned that. The second question is, I have just read that Netflix bought back Casa de Papel from you for the third season and will actually produce the third season themself as it is the most highly watched non-English speaking content on Netflix. Can you tell us or give us some indication on how much they pay you for that wonderful program? That's my second question. And on -- if you could explain your targeted advertising plan on HD DTV, is my third question. And fourth question, sorry coming back on advertising, if you look at the comps last year, the first half was flat, the second half was up 2% and the market was up 1% for the full year. So if we end up the first half at 0, to reach 2% to 3%, you need to be up 4% to 6% in the second half on comps that are 2 points tougher. What makes you confident that you're going to get such an improvement in the second half?

[Silvio José González Moreno, CEO, MD & Executive Director]

Yes. About OpEx, we confirm the guidance we gave in the beginning of the year, which is flat compared with last year. About the second one, Casa de Papel, I agree with you. It's a marvelous fiction, but I cannot disclose any of the economical terms. The only thing that we own the IP of the fiction show. Any spinoff, any new making chapters, we will get the money out of them. About HD DTV, we're just in the very beginning, so we will launch in the test way in June. And we need to see which is the real size of this operation and how can we get -- take advantage out of it. We do expect that, because we entering a new world, which is all we target additional television, and there will be some extra advertising on that side. But in this very moment, we cannot quantify which will be the effect on that side. And about the market, I mean remember that the -- if you compare this first 4 months, you know, April 2017 with 2018 will be more or less the same performance of the market. So it's -- if the year performs as it did last year, we'll grow by 2%. So there is a lot being -- and you have also the World Cup, which will be an extra advertising budget in television. So there's no -- I mean, there's not any reason that could explain that we cannot get the target we have -- we gave you in the beginning of the year.

[Julien Roch, Managing Director and European Media Analyst]

Sorry, Silvio. I'm not sure I understand your answer because both you and Mediaset España said you have finished the first 6 months at flat plus and you're saying 2% to 3% for the full year. So you need 4% to 6% the growth in the second half on tougher comps. So I'm not sure I understood your question -- your answer, sorry.

[Silvio José González Moreno, CEO, MD & Executive Director]

Yes, well, the -- but I think that by the end of the first half, you can see that the World Championship will be more than flat. I'm saying flat if you compare that on a regular basis. We are taking out the effect of the World Championship. But I should say that if you stay flat in a regular basis, we could be luckier, we grew by 2% on the second half of the year and why we would not expect to grow by 3% to 4%, which means that we could meet that target of growing 2% on a regular basis taking out the World Championship. That was my answer.

[David Gómez Baquero, Director of Investor Relations]

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

[Operator]

[Operator Instructions] And the next question comes from Fernando Cordero from Banco Santander.

[Fernando Cordero Barreira, Equity Analyst]

And there's one question from my side. It's particularly regarding the working capital performance in the first quarter that has been quite or contributing clearly to the net debt reduction. I'd like to know if there are some recurring elements in this working capital performance that can be extrapolated for the full year?

[Antonio Carlos Manso Marcos, Chief Financial Officer]

Well, our guidance for the full year in working capital movement will be around 0 plus or minus EUR 10 million and we remain tied to that guidance. It's true that this month, this quarter has been very good. That's a part that is seasonal. The receivables in March are always lower than in December. We are reducing, but it will change hopefully in the following quarter. But it's true that we are reducing our library of films. But we prefer to maintain the area of plus 10%, minus 10% in working capital unless [ indiscernible ], if we are able to improve that level.

[David Gómez Baquero, Director of Investor Relations]

Thank you, Fernando. We have new question, so go ahead please.

[Operator]

The next question comes from Laurie Davison from Deutsche Bank.

[Laurie Davison, Research Analyst]

It's just a follow-up. On the OpEx side, if advertising was, let's say, up 1% for the market rather than the 2% to 3%, which you expect, and so you would be doing flat advertising revenues. What OpEx -- how much OpEx could you cut from the guidance do you think in that type of scenario?

[Silvio José González Moreno, CEO, MD & Executive Director]

In that case, we'll sit down and reschedule our budget. Of course, there are some room there to cut cost and we will try to meet our targets in terms of EBITDA level, whether the revenues are the ones we expected or are a little bit lower. So, of course, we are -- we will be always flexible to meet our targets in terms of EBITDA level if the market is not performing as well as we expected in the very beginning of the year.

[Operator]

The next question comes from Fernando Cordero from Banco Santander.

[Fernando Cordero Barreira, Equity Analyst]

Thanks for the follow-up. Just looking to the new reporting and looking for the detail of the pricing in the first quarter, I just would like to know what are the different drivers around the relevant [ indiscernible ] and if these are performance defining the first quarter and it can be sustainable in coming months?

[Silvio José González Moreno, CEO, MD & Executive Director]

Fernando, it's Silvio speaking. Just to explain that in the first quarter, as you know, the effect of Smartclip, which was not last year. Second quarter will have the same effect because Smartclip was incorporated into the perimeter as of July last year. And we think this activity within this division you'll have which is in market which will grow nice growth rate mid- to high- single digits every year. And then the growth in [ indiscernible ] that will have probably the same as this. So in this year, we will have the effect of the perimeter in the first half, but as of July, we will be able to converting like-for-like basis and then we will see the growth that I just mentioned in this range of mid- to high-single digit.

[Operator]

The next question comes from Laurie Davison from Deutsche Bank.

[Laurie Davison, Research Analyst]

Last question from me. Just the -- what is the level of spare capacity now that you have on average across your channels? And could you just break down by peak time and overall for the whole schedule?

[Silvio José González Moreno, CEO, MD & Executive Director]

Well, we can provide you the real figures afterwards. But I mean, March, we have some room there. But it's -- we have some room there. But we are more or less occupying something like 86% in prime time, something like 75%, 80% in daytime. So there is still some room there. But, of course, March is not the month that you can take into consideration because of Easter. But so we're also trying to occupy as much as we can because I mean if there is a time you don't occupy, time is free and you cannot cover in the future. So we always maintain the area of occupying as more as we can. Thank you.

[Laurie Davison, Research Analyst]

Would you say that the -- you've got to grow pricing here or is there actually much scope to increase volume over this -- over the course of this year given what you are seeing in terms of viewing?

[Antonio Carlos Manso Marcos, Chief Financial Officer]

I mean, of course, there's always some room you can occupy more but at that point over just pricing. I mean the way we can grow is by increasing price.

[David Gómez Baquero, Director of Investor Relations]

Thank you, Laurie. Can we have the next question, please.

[Operator]

There are no further questions in the conference call, speakers, so I now give you back the floor.

[David Gómez Baquero, Director of Investor Relations]

Okay, thank you very much for your attendance. If you have further questions, please just don't hesitate to contact the Investor Relations department. And we will talk to you in July for the first half results. Thank you very much. Bye.