Atresmedia Corporacion de Medios de Comunicacion SA

MAD:A3M

Earnings Call Transcript 2019-Q2

[David Gómez Baquero, Director of Investor Relations]

Hi. Good morning. Welcome to this conference call in which we are presenting Atresmedia results for the first half of 2019. My name is David Gomez, Head of Investor Relations. I'm glad to introduce Silvio González and Antonio Manso to present the highlights for the period, and then we would move to the Q&A. So please, Silvio.

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

Hello. Good morning. And then let's begin with the advertising market. I mean according to several sources, the advertising market in this first half of the year has been down. The total advertising market has been down by 2%. And television advertising market has performed worse than the market because I mean it has been down by 6%. It is true that we've taken in account that last year, it was the football championship and then also, there was 2 election processes in Spain, which we think does affect negatively the market. But anyway, advertising market had been down by 6% in the first half of the year.Radio is in positive by nearly 3%. So it's doing good. And the digital advertising market has grown by 10% on a year-on-year basis.Talking about audience. I think we have done a good first half of the year. The total audience for the group has been 26.9%, which is a good one compare in -- let's say, taking account the Champions League, which we had in the last year. We have not this year.Talking about the commercial target, the audience has been 28.5%, which is very much in line with the first half of 2018. Antena 3, as a unique channel, has reached 12.4% which compared with 12.3% last year. So we have improved by 1 point -- 1% point. And I think that this increase has been leaded by the script and the infos programs of the channel.Talking about laSexta, laSexta has got an audience share of 7.2%, which means an improve of 0.3 points, which means that we are in a quite good position, and we have also outperformed our main competitor, which is La Cuatro. So doing -- laSexta is doing very well. And the accumulated audience of complementary channels has been 7.4%. So I think for the group, it has been a very good first half of the year regarding the audience share.Talking about the figures, I mean the total revenue for the group have reached EUR 540 million, which means it's a decrease of 1.9%.Talking about the audiovisual part of the business, the total revenue has been EUR 439 million, which means a decrease of 5.6% compared with the same period of last year. Atresmedia Televisión market share has grown by 10 points, and we have grown up to 41.7%, with a power ratio of 1.6%. So we are doing better than the market. That's why we have increased our power ratio.Talking about the net advertising revenues of the Televisión, it has been EUR 417 millions, which means a decrease of 6%, which is very much in line with the performance of the market. The digital revenues of the group has been EUR 22 millions, which means an increase of 2.5% compared with first half of 2018. And regarding the content production and distribution area of the group, it has reached EUR 40 million, which means an increase of 26.3%. And the reason is mainly driven by the deliveries of programs of our Atresmedia Studios production.Talking about radio, total net revenue has been EUR 43 million, which means an increase of 2.5%, very much in line with the market. Total OpEx for this period has been EUR 436 million, which means a decrease of 2.9%. And the decline is -- you can explain it mainly by the savings in program costs very much devoted for the absence of the rights of the Champions League that we had last year and we don't have this year. The -- so the EBITDA for this period has come up to EUR 104 millions, which meant an increase of 2.5%, which means an improvement of the margin because I mean last year, we have 18.4% and now we have 19.2% in spite the weak television advertising environment. So I think we have really done a very good semester.The net profit has come up to EUR 70 million, which means an increase of 0.5%. The net debt at the end of this period has been EUR 218 millions compared with the EUR 231 million we had at the end of December '18, which means more or less that the net debt compared with the last 12 months' EBITDA is 1.15x. So I think we are very -- in very good position [indiscernible]. The operating cash flow has been EUR 85 millions, which is more or less around 80% of EBITDA of the period. And as you all know, we paid an extraordinary dividend in June 2019, which an amount of EUR 0.25 per share, which complement the dividend we gave in December '18. So all in all, it means that our dividend yield has been 10%, which is one of the highest of the Spanish Stock Exchange. So these are the figures for the first half of the year.Let's talk a little bit about the guidance, about how we foresee the future. I mean talking about the advertising market, we do think that as it is performing now, I think that it is difficult that the market will have a significant shift, a positive shift in the second part of the year. So we do think that for the whole advertising market, we expect the performance pretty much in line with the first half of the year. So we do expect that the market will be down by, let's say, 2%, something like that. That's for the total advertising market.Talking about television, as you know, we expected at the beginning of the year that the market could be down by 1% to 2%. That's what -- that was our hope and our expectation for that time. Now seeing that the first half of the year has been a decrease of 6%, very much in line with that. And we don't think that we can't compensate this down trade of the market. So -- and we foresee the second part of the market being negative in the range of 3% to 5%, more or less. If there's also significant shift, we do think that -- if everything goes as it has gone in the first half of the year, we do think that the market in the second part of the year will be down by 3% to 5%. So that's our highlights and our guidance for the whole year.We do think that our group, we will go on outperforming the market due -- that we have a better position because I mean we don't -- we didn't have the FIFA Champions League last year. So we are in a better position to outperform the market. And because we have also a better position in terms of audience, so that -- I do think that we could maintain the increase in market share that we has -- have had in the first half of the year.In digital, we maintain our high-single digital digits for 2019. As you know, we are talking around very small figures. So just a few hundred thousands, it means that you keep -- you get a trend. So we maintain the same goal for the future.In the content and production and distribution division, we have already achieved a double-digit growth that we don't expect to go much further than that because, as you know, it depends on the delivery of the programs, and we have delivered the most part of them in the first half of the year. So there, we don't expect a really significant growth apart from that.In the radio, we are very much in line with the market, and we do think that we will go on so that we are very confident to maintain the same margins and the same EBITDA level we got in 2018. So there is no significant change in radio.And talking about the OpEx, as you know, we began the year with OpEx guidance of EUR 185 -- EUR 855 million, and we changed that to EUR 185 million, including Atresmedia Studios. And I think that the next -- I mean the OpEx guidance for the whole year will be in the range of EUR 845 million. So there will be a decrease of EUR 10 millions with the guidance we gave you, and which is nearly 10 -- EUR 20 million less than our initial guidance. So 145 -- EUR 845 million, sorry. And well, we -- even with this, let's say, poor market -- poor television market, we -- our aim is to repeat the EBITDA levels we got in 2018. So I think that even with this market, we can get at the end of the year the same EBITDA level we got in 2018. And so we are just in a -- trying to do that and putting our efforts in this challenged position there.And so -- and that's all. Thank you.

[David Gómez Baquero, Director of Investor Relations]

Thank you very much, Silvio. We move into the -- on to the Q&A session. So we're going to open the line for your questions. Thank you.

[Operator]

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

[Annick Tonie Maas, Analyst]

My first question is on the ad market. So you say 3% to 5% decline in H2. What are you seeing in July and August? Is that closer 2% to 3% down or 2% to 5% down? The second one is on production. So you suggests no more growth or not more growth in the second half with most of the content deliveries having been done. So what do we expect from the second half, flat growth? And then radio, it's the same here. I mean Q1, it was actually quite well, and Q2 was actually underperforming. So what do you expect there in terms of -- shall we just expect a 2% growth for the next half? Or -- if you could just give a bit more detail, that would be great.

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

About the advertising market, I mean July -- I can only talk about July because I mean August is still far away, but July is a little thing a bad month. I mean it's now -- it's more or less minus -- between 9%, something like that. It's also -- it's true that if you take the World Championship -- so ex World Championship, the market will be down something like 5%. But July is not a good month, so that's why I cannot foresee August. So that's why we think that the performance of the market will be -- it's supposed to be very much in line with the first half of the year. Yes. It's true about distribution. We expect to be flat for the second part of the year. We have made -- we have anticipated the deliveries. And so we are just in the production process, but we would not deliver any more product until next year. So that would be flat. About -- I mean about radio, well, as you know, there are some phasing. So we do -- that's why we do think that by the end of the year, we'll be very much in line with the market and having more or less the same EBITDA levels and the same margins that we got in 2018. So then, I think there's no concern in radio. I mean it's just a problem of facing different months, and that's it. So we are not concerned at all with the radio performance. Thank you.

[Operator]

[Operator Instructions] The next question comes from Remi Grisard from Societe Generale.

[Remi Grisard, Equity Analyst]

Regarding the production activities, we saw an increase of around EUR 10 million in the first half. I had in mind EUR 15 million for the full year. But at the same time, the costs have been up almost EUR 10 million in staff costs and EUR 10 million in costs linked to expenses. And it's stated that it's mainly because of the production activities. So could you please come back on the level of profitability of the new production activities for the full year? And my second question is regarding your plans for SVOD. We know the LOVEStv is on hold and the Mediaset España is launching its own SVOD platform. Are you going to launch a similar project?

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

About the OTT, I mean we are far ahead Mediaset. We launched our OTT platforms 2 years ago. We have 35,000 subscribers. So we are far ahead Mediaset. I mean the -- so they still fight to get ahead on us. So the point is that we will go on with our Atresmedia premium. We will try to invest and get some original and not known products. So that's the next step in this platform. That's -- I mean we are far ahead from when they are. It is true that when we create this, let's say, type of consortium with TV and Mediaset trying to develop HbbTV, which is called LOVES televisión, we also offer them -- because I think it's something that it's been doing all around Europe, which is try to get agreement with all the, let's say, some country operators in order to create the same platform. But I mean I was -- I didn't success. I don't know why but I didn't success. But I mean, we are far away. We have 30 -- I think it's 38,000 in Spain and like -- something like 30,000 subscribers outside Spain. So I mean we are by far, far ahead than they are in this moment. And about the second question...

[David Gómez Baquero, Director of Investor Relations]

Yes. One -- just 1 second, Remi.

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

So about the content area, about the production and distribution. I mean the problem here is that it's something about phasing. Something -- you never know when you are delivering the product. If it's going on in the year, January to December or in January next year. So the point here is that we are in track with the production and with the amount of money that we are getting out of that. But I mean the phasing is -- could not be the same as we thought in the very first moment. But I mean distribution is very much in line. And about the staff -- but here, you are talking of different things. I mean there had been an increase on the staff side because I mean we have incorporated all the people coming from the newsroom of laSexta, which was outsourced. We made them in-house. It -- this -- which hasn't -- they had supposed an -- a savings around EUR 1.5 millions. And we have also in-housed all the IT services. We have a -- we had a company, 50% Atresmedia and 50% [ Indra ]. And we've finished this collaboration as a whole. We have in-house all the people coming from A3. There has not been a cost increase. So I mean it's only a change in the different items. So it has no impact on the EBITDA level because I mean it's the same cost in 1 item or the other. So no big change in that. Thank you.

[Remi Grisard, Equity Analyst]

Okay. And the EBITDA margin target for provision activities is about the same as your average EBITDA margin for the full year?

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

I mean we do think that the EBITDA margin of the production area, distribution and production will be in the range between 10% to 15%. Yes. So it's -- we maintain the same target.

[David Gómez Baquero, Director of Investor Relations]

[ And we still have some things to resolve. ]

[Remi Grisard, Equity Analyst]

Okay.

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

Yes. We are talking about studios. I mean not about the whole company, which is 19.2% or something like that. So for our studios, it's between 10% to 15%.

[Operator]

Your next question comes from Patricia Pare from UBS.

[Patricia Pare, Associate Analyst]

My first question is on the OpEx, and sorry to come back on that one. Can I just confirm the previous guidance of EUR 855 million was based on 3 shows being delivered from Atresmedia Studios and the EUR 845 million that you're giving now is based on 2 shows because one 1 has left to 2020. Is that right?

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

I mean when we have the conference call and we have the highlight for 2019, what we said is -- was that we -- our guidance was cost -- the OpEx was EUR 855 million plus the costs of the content and production area. So that would the first highlight. We gave in the last quarter another high -- another guidance, which was that the OpEx for the company were -- will be EUR 855 million, including Atresmedia content and production area. And now our new OpEx guidance for the full year, including everything, is EUR 845 million. So that's it. I hope it's clear for you.

[Patricia Pare, Associate Analyst]

But are you still counting on 1 extra show being delivered in Q4?

[Antonio Carlos Manso Marcos, Chief Financial Officer]

It was included in the 3 years.

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

Sorry, it was -- the change in the production side was included in the previous guidance, in the guidance in April. So from April to July, the difference is a savings of EUR 10 million additional without any impact of the -- of Atres Studios.

[Patricia Pare, Associate Analyst]

Okay. Okay. And my second question is on the digital revenues. Growth has slowed quite materially. Can you talk about what happened there and how to bring the growth rate like up to the high single-digit rates you're talking?

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

About this, so -- it is true that we are a little bit below the market because I mean we have to grow by -- we have grown by 2.5%. Everybody is [ 20% ], but I mean we are talking a very small amount of money. With EUR 200,000, you get the 20%. But the point here is that if you analyze the area, we have been better in term of cost and in term of margin and in terms of EBITDA. So it is true that we are a little far below the margin, but we have outperformed our position in terms of margins and EBITDA. And I think that in the second part of the year, we will be able to get the track and has more or less the same high single digit that we gave you as the guidance for the year. So we do feel very comfortable with the new -- with guidance, which is we will be high single digits for the digital area. So there is no big concern there. We are talking of very small money in -- let's say, in absolute terms. So that's why this decrease between the market and our performance is not -- we will getting track very quickly in the second half of the year. Thank you.

[Patricia Pare, Associate Analyst]

Okay. And then just one last question on pricing, which in H1 was flat. Is that like-for-like? Or is it including like this trendy, this sports effect? And how do you think about that in H2 '19?

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

Yes. About the pricing, it's flat. That if you take out the Champions League effect, the pricing will be up something like 1.5%, 1 -- between 1.5% and 2%. So pricing ex Champions has been up by between 1.5% and 2%. But with Champions in sight, it will be more or less flat. Thank you.

[David Gómez Baquero, Director of Investor Relations]

It's okay, Patricia? Or do you want...

[Patricia Pare, Associate Analyst]

Yes. Yes. That's okay.

[Operator]

The next question comes from Fernando Cordero from Banco Santander.

[Fernando Cordero Barreira, Equity Analyst]

And as a follow-up on ATRESPLAYER, and -- obviously, you've given your cost guidance and you're ignoring or I assume that you are not considering to add more content from third parties on ATRESPLAYER. In that sense, I would like to -- also to understand or what are your views regarding the chance to add third-parties' content into ATRESPLAYER in order to enhance the offer. And particularly, for example, talking about premium sport content, like other [ OTTs ] in the market, what are your views ahead or regarding the potential to creating an OTT platform with the content that you have with premiums content?

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

We are not considering sports content as something that could be included in our ATRESPLAYER premium. I think that no one has proved sports to be a profitable issue. But everyone has their own decisions. What we try is to get an ATRESPLAYER premium, an OTT platform, which includes fiction, programs, and we will be from the second part of the year increasing our offer, giving some originals and new programs. And I think this is the, for us, is the right way to increase our business in the B2C area. And I think we don't need because I think it's not profitable, any content related with the sports. And so far, we don't think this is the right thing to do for us.

[Fernando Cordero Barreira, Equity Analyst]

And just as a follow-up, if I may. And you have guided to EUR 845 million OpEx. You are also saying that you are aiming to repeat the EBITDA of 2018 in 2019. If we do a quick math, it would imply that for the second half, you are targeting flattish revenues in the second half in a consolidated basis. Under a scenario of 3% to 5% drop in the TV ad market, it would imply that you are expecting a material, I'm going to say, recovery in terms of market share. Is that the rationale? Am I understanding it correct or I'm missing something?

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

I think you are focusing too much on television revenues. I think there are some areas that...

[Fernando Cordero Barreira, Equity Analyst]

Okay.

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

So it's not only television. We have a big group with some other areas that can add up some revenues. And of course, it's challenging, but I think that we could phase it and that we could get it at the end of the year. Thank you.

[Operator]

[Operator Instructions] Ladies and gentlemen, there are no further questions in the conference call. I now give back the floor to the company.

[David Gómez Baquero, Director of Investor Relations]

Okay. Thank you very much. Thank you, everyone, for your attendance. We just wish you a nice summer holiday. And for any question, don't hesitate to contact the IR department. Thank you very much.

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

Thank you.