Mediaset Espana Comunicacion SA

MAD:TL5

Earnings Call Transcript 2021-Q1

[Operator]

Good day, and thank you for standing by. Welcome to the Mediaset España First Quarter 2021 Results Presentation. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I will introduce you now to Mario Sacedo, Head of Investor Relations. Please go ahead.

[Mario Sacedo Arriola, Head of Investor Relations]

Hello, good morning, everybody, and welcome again to our first quarter results to 2021. This is Mario Sacedo, Head of Investor Relations, and let me introduce to today's speakers. The presentation will be hosted by Massimo Musolino, General Operation Manager. After the presentation, we will open a Q&A session hosted by Massimo Musolino; Quico Alum, Publiespaña General Manager; and Javier Uría [indiscernible] [ answer ] all your questions. Massimo, you have the floor.

[Massimo Musolino]

Good morning, and welcome to Mediaset España First Quarter 2021 Results Presentation. I will give you a short presentation of the main operational and financial figures that we published earlier this month. If you have any questions, there will be a Q&A session once the presentation has finished. Let's start on Slide #2 with our traditional quick review of the main figures of the quarter. In operating terms, Mediaset España maintained a leadership position in the Spanish market with an audience share of 28.5%. This is even more remarkable when you consider that our commercial target share reached 31.5% in April with a gap of 4.4 percentage point against our main competitors. As you can see in the graph, at the beginning of the year, the audience share starts off low and gradually increases. This is due to the fact that the TV advertising market is usually slow at the beginning of the year, this year, more than usual. And therefore, we invest less money in the programming grid. However, as the advertising market picks up, investment in the programming grid increases. And so does our audience share. Following the figures reported by Infoadex, the total TV advertising market declined by 13.6%, with Mediaset España reaching a leading market share of 42%. If you look at the total Spanish audiovisual market, Mediaset España's market share in the first quarter was 30.6%. Moving on to financials. Total net revenues in the quarter reached EUR 184 million. In terms of costs, as we just mentioned, we adapted our cost base to the advertising market evolution, which was weaker than expected in the first quarter, and we proactively managed our operating expenses. We are seeing that the advertising market is beginning to bounce back in April and May, and the cost will inevitably reflect this. EBITDA for the quarter amounted to EUR 51.3 million with an EBITDA margin of 27.9%, one of the highest in the industry. Net profit in the period stood at EUR 36.7 million and earnings per share amounted to EUR 0.12. Finally, a quick remark regarding free cash flow generation, which has increased by 14.4% versus last year. And our net cash position of EUR 95.6 million. Both of these figures were positively affected by the lack of investment as a result of the pandemic, where we were forced to postpone some content creation. We hope to begin seeing a progress in normalization throughout the year. On Slide 3, you can see that the daily average total TV consumption per person was 247 minutes. Although the beginning of the lockdown in the second half of March 2020 is included, the reported figure is more or less the same as last year, just showing a small decline of 3 minutes in the quarter. In order to have a clear understanding of these figures, you have the last 3 years' consumption figure in the graph. You can clearly see that with or without the pandemic, 4 hours of daily consumption is a stable figure, making Spanish TV consumption one of the highest in Europe. In fact, the average daily figure in the last 3 years is 246 minutes, with a small deviation, up or down, which clearly shows how relevant television still is. Diving into Mediaset España numbers, if we make a fair comparison, avoiding 2020 when people were at home because of the lockdown, you can see how our main channel outperformed market evolution, thanks to the daily TV consumption increase of 7.3% in Telecinco and 5% in Cuatro, while total market growth was less than 3%. During the pandemic, the TV has reinforced its position as a central role in homes across the country, being a reference for the whole family, both in terms of news and entertainment. On Slide 4, there is a breakdown of the advertising market evolution on a monthly basis. The beginning of the year was affected by the third wave of the pandemic. It's fair to say that January and February were weaker than expected with the TV advertising market declining by more than 20%, while the digital advertising market remains flattish even though it saw a slight decline in January. In March, we did benefit from the comparison basis, but the advertising market reacted to the slowdown of the pandemic. Some of the delayed campaigns were launched. Advertisers were much more dynamic in both TV and digital ecosystem, and we saw a market growth of 5.8% and 21.6%, respectively. The improvement continued and was even more visible in the following weeks, where our internal estimates suggest that the TV advertising market grew by more than 150% in April, while May is pointed towards improvement of more than 100%. We believe that we are now finishing a cycle and beginning a new period where we are ready to capture the market rebound with the right content and with enough flexibility to adapt our programming grid and commercial policy to the promising environment. One thing that must be taken into account is that tomorrow, the state of emergency in Spain that was put in place last year will end, and most of the limitations are going to disappear. This could be considered as the beginning of a new normality for everybody and should bring an increase in the consumption rate. And as usual, the advertising market will anticipate the cycle on commercial campaigns will be launched before. I would like to remind that this has been a health crisis, not a financial one. With regard to the digital market, we cannot estimate the total market in April or May, but we can say how our digital revenues for April saw an increase of over 200%. More than 120% is organic growth revenue, mainly driven by this market, leveraging the 4.3 million unit users in the period, and news -- the digital news website, which increased a number of unique users by [ 81% ] to 3.9 million. Also, you have to take into account the extra and organic growth derived from the Be a Lion appreciation, which was included into our consolidation perimeter last August. Moving now on to Slide 5, you can see how our TV advertising revenues evolved during the first quarter. As Infoadex reported, Mediaset España TV advertising revenues amounted to EUR 159.5 million, once again, reaching the leadership position in the TV advertising market with a market share of 42%. As we mentioned before, although the advertising market declined by 13.6%, we remain positive that the advertising market will recover in the coming months. This recovery has been visible in April and beginning of May. Mediaset España's offer and at the most qualitative profile are supported by the commercial target is allowing us to build a strategy based on price as a fundamental pillar of development. If we look at the different sectors, we can see the signs of recovery in each. For example, the evolution of the automotive sector, which saw a decline of more than 40% in Q1 and was the worst performer in the period. In April, May, it has been booming, reaching an accumulated figure similar to the same period of 2019. Telcos and gaming companies have also seen triple-digit growth in April and May. Advertisers that disappeared, for example, some from the [ fast food ] sector, are also returning to the market. Leisure is about -- picked up as the summer campaigns kick off and so on. In conclusion, all of the above are clear indicators that we are experiencing a change in cycle, reinforcing our conviction that saving our strongest programs for the rest of the year has been the right decision. On Slide 6, we now explain our Mediaset España [ adaptive ] timing of our programming reach to the market evolution in the period of the year where we have [ new road due to ] advertisers' dynamic. As you've seen in the previous slides, the audience share number has been improving month-on-month since the beginning of the year. January and February are months where there is less money [ made ] in the advertising campaign. In 2021, on top of the structural performance, you have to take into account the impact of the storm Filomena, which had brought Madrid to a standstill for a week, and the third wave of the pandemic, which brought additional restriction to moment. The company decide to be more cautious in the management of our programming grid and postpone some of the contents that were scheduled for a better advertising market environment. As a result, in March, when the expected programming grid was upgraded with high-quality programs, we reached the undisputable leadership position in terms of audience shares once again, reinforcing our expectation for the next period due to the strength of our portfolio for coming months. First, we have the right to [ fore-sign ] the most relevant sporting events in the year such as the football EuroCup, both the national team and the Under 21, Spanish Formula 1 Grand Prix next Sunday, and a couple of motorbike tour cup races. Talent reality shows remain one of our key products in the prime time. Today, we are enjoying a great audience share with Supervivientes, Survivors. And there are others such as Top Star, Got Talent, Big Brother VIP Edition still to come. Of course, our successful fiction will -- had a relevant role in our programming grid. For example, the new season of El Pueblo, La Que Se Avecina, in addition to the game shows such as El Precio Justo, the Alta tensión, which will secure the diversity and the quality of our schedule. Again, we want to reinforce the presence of our content production company, which provide high-value flexibility for adapting proportion -- proposition to the advertising market situation. Both in terms of speed [indiscernible]. And as you can see in the annex of the presentation that we distributed before the call, in-house content today represents 54% at the group level, which is almost 3 percentage points more than last year. And if we only look at our main channel, Telecinco and Cuatro, the figure overcome 85% of the total. Slide #7 gives you a brief summary of the main actions taken into the quarter in order to adapt our business to the new audiovisual market reality. First is a remarkable agreement reached with Movistar, which will allow the Mitele platform to join the Movistar platform. At the end of the quarter, Mediaset España SVOD platform had more than 208,000 members, subscribers. In just 3 months, we almost doubled the number reported at the end of 2020 when we finished the year with 109,000 members. Let me quickly remind you about our strategy for the Mitele platform. We have increased from 167,000 members 1 year ago with a football rights to 208,000 members without football rights this year. We make decision not just to multiply the number of subscribers, but we also established a profitable platform based on our own content, providing another distribution platform for them as an extension the TV business. And I personally believe these numbers are a clear example of how successful it's being in terms of the content and commercial offer we put in place during the year. Second, the group is currently working to improve our HbbTV technology, where we believe there are excellent opportunities, great potential for rising the group's top line. HbbTV represents a key tool for capturing the future advertising market opportunity, thanks to it being a meeting point for the competitive advantages of both the traditional TV model and the digital ecosystem. We have started to launch campaigns and we have upgraded the technology and the number of adaptive TV sets is seeing rapid growth in Spain. And we are -- and we have already received the first income from this activity in our P&L during the first quarter of this year. Today, we are more convinced than ever about the relevance of the HbbTV in the future of the business. Finally, Slide #8, just to update the outlook we shared with you some weeks ago regarding 2021. We are progressively returning to normality since the beginning of the year. Vaccines are working pretty well, and the pandemic situation is moving in the right direction, which leads us to believe that we are currently experiencing changes in the cycle where the worst is behind us and the best is beginning. This reinforces our conviction that saving our strongest programs for the rest of the year was the right decision. The annual evolution remains in line with the general forecast and market recovery continues as it has been. We will see a much better situation in the summer, which is exactly the time of when we will broadcast the football EuroCup, therefore, benefiting from both audience share and advertising market revenues. In the meantime, we continue to flexibly manage our programming grid. And generally speaking, our resources are in line with the evolution of the pandemic in the advertising market. Let me remind you here about the operating cost evolution posted in the first quarter this year where 18.4% decline reported, let's say, is not a valid guidance for the rest of the year if market condition remain as they are today. If the market continues to boom, we will invest more in order to adapt our proposition to advertising and audience demand. As usual, we reconfirm our main objective for this year, which are the same as always, maintaining the leadership in Spain, both in terms of volume and advertising market share and confirming Mediaset España as a leader in profitability. At the same time, we do believe in the European consolidation as the only way to gain size and scale and to face the newcomers, achieving synergy in both cost and revenues. We have the ambition to be part of the company that will drive this process and we are working to take our position there. We are aware that something is happening in the media sector all across Europe, and Mediaset España is to be there, playing the game. And now let's move into the Q&A section, please.

[Operator]

Thank you.

[Mario Sacedo Arriola, Head of Investor Relations]

Thank you, thank you, Massimo. This is the end of our presentation, and now we are ready for taking all your questions. Operator, please, let's proceed to open the Q&A session.

[Operator]

[Operator Instructions] And our first question comes from the line of Julien Roch from Barclays.

[Julien Roch, MD & European Media Analyst]

Yes. The first one is on May. So you told us that April was up 150%, that May was more than 100%. But Atresmedia already said that May was up more than 100% on the 29th of April, so about 8 days ago. So have you seen improvement as we go towards May? Could May end up being in line with April? Or will May be worse than April? That's my first question. My second question is on cost. I understand that you said if market recovers, you will increase cost. But would it be possible to have a -- like a viable guidance? So for instance, Atresmedia is saying if revenue goes up by EUR 100 million, costs will go up by EUR 50 million. So can you give us some indication of operational gearing?And then the last question is on cash return. I mean you ended up Q1 with EUR 96 million of cash. So you're under-geared. Could we see some buyback on top of the dividend? These are my 3 questions.

[Francisco Javier Uría Iglesias, CFO & Director of Economic]

Yes, on the second point on costs. As we normally say, we do not have a matrix of if TV advertising market goes up by x percent, then we'll increase costs. So we don't have that kind of numbers on the table. But there are a number of factors that should be considered when we look at what's likely to happen in the 9 months until the end of the year. The first one is, of course, has to do with the recovery. We are seeing, based on the numbers that we have put on the table that we expect a recovery already in April and May as the economy goes back to normal, business in general, too. So that will be the first part, of course. If that is the case, if advertising is going to perform well, we want to make sure that we have the right lineup and mode of investments and everything else in order to keep the audience and to keep our share of the advertising market as high as we can. Second element, which is important is things that have to do with the variable costs, right? As things improve, of course, we will have more variable costs. This is something that should be factored in. And also there's some cost of sales, which is very important because in the first quarter, you have seen we don't have any movies activity. So that means that, that is going to come in the rest of the year. We have 3 new launches, which are likely to come in this year. And of course, all that cost is going to be there as well. And as the things go back to normal as well and really position to sell the production that -- which we have a slack as well because of the pandemic. So all those things will have to be factored in. So all the things being equal, without, like I said, launching a number on the table, you might expect that our cost base is going to increase. And in that respect -- and again, without taking that as a benchmark, but our cost base will be more likely -- and not to forget about the EuroCup, which is something that is -- should have taken place last year and is coming up now. So we should have a benchmark, which should be more '19, plus the EuroCup, more than anything else. That would be what we should have in mind.

[Quico Alum, General Manager of Publiespaña]

Okay, about May, what we are seeing today is that the market is going to grow, we think, over 100%. But of course, it could be better than last year because now in this moment, we are waiting for the confirmation of some campaigns and clients for the last part of the month. We don't have yet this confirmation on the table. But we think that the market could be better, but we have to wait for that. I mean -- and it's because, I mean, the most important thing in May is that some sectors like automotive is coming back in April and also in May, and also, it's going to be coming back in June. Then we are waiting for some brands, automotive brands to launch their campaigns for last part May and for June. And for that, also, if we talk about June, we don't know anything about June now, but I think the market is going to continue to improve over by -- month by month. And don't forget that in June, we are going to have -- we have the European Cup and this is going to be a really good benefit for us. And for that, we answered your question, we hope and we expect that it's going to better 100%, but I cannot quantify how much better.

[Massimo Musolino]

About the third question, there are no changes with respect to what we said in our last call. I'd like to remind that as we said also in this call, our cash position in this moment is affected by the fact -- [ positive ] affected by the fact that we haven't invested during 2020 and the beginning of 2021 in movies and in fiction due to the pandemic situation. It was impossible to begin any production. So let's say, part of this cash position will be used to recover this delay in content production. And finally, I also would like to remind that we continue to look at growth opportunities that can arise in our sector. So by the moment, I don't see -- we don't have, on the table, the possibility of being in distribution either of a buyback project.

[Operator]

Your next question comes from Fernando Cordero from Banco Santander.

[Fernando Cordero Barreira, Equity Analyst]

The first one is on the other revenue line. And in that sense, it is true that during the first quarter, you have very tough comps year-on-year. But I would like to understand at which then, the comments that you shared with us in previous calls regarding that the business is already prepared in order to have a recurring EUR 100 million revenue contribution per year. When do you believe this top line contribution you speak would be reached? And my second question is regarding or is almost [ about ] on the previous one, on the cash return on a broader basis. Given the recent comments from your controlling shareholder, not only that the change of domiciliation to The Netherlands, also the way to increase the -- sorry, the operational integration with Mediaset España, also the agreement with Vivendi, I would like to understand where are your views on the implications of the -- of your controlling shareholder updated strategy on your strategy? And also, willing to understand if Mediaset Italy is interested in M6, in the French broadcaster? Are we [ understanding ] España could play or could play a role on that potential interest?

[Francisco Javier Uría Iglesias, CFO & Director of Economic]

Yes, on the first point, Fernando, you know that this other revenue line is a box with many buckets in it and each of them is doing differently. Also here, it's not -- we should not be talking about trends. We're talking about special situations for each of these buckets.First of all, here, we'll have movies. One of the reasons why we have a lower number this year versus last year is because of the movie activity, which has been basically 0 in the quarter. Like I said before, we expect that this is going to resume in the next month, and launches of new fields are going to take place. The 3 is what we have in mind until the end of the year. We also have the Mitele Plus. We had the football last year. And of course, this year, we don't have those revenues, but we don't have the costs either. So in terms of margin, it really works well. We also have the sale of content. As you know, sale of content in the first quarter of last year was very good. We have some sale of content as well in the first quarter of this year. But this is a number, again, that will have to wait until we have all the production, and we have everything that we can sell. And this is something that will take place as the year goes by. So again, and to sum up, this is not a trend. This is a mix of different items, and each item is in a different situation in different points in time. So we will have to look at what happens in the following months in each of the buckets.

[Massimo Musolino]

About Mediaset Italia and a role that Mediaset España can have in the M6 project. We, as the Mediaset España, fully aligns with Mediaset Italia about the need to grow in the -- and the need to develop a pan-European project. So of course, as Mediaset España we look at any opportunity that can be coherent with this objective. We look for growth opportunity. You know that due to the antitrust rules, we don't -- we cannot do many things in Spain. So of course, we need to go at all the opportunity can arise outside Spain. In this context, honestly, the possibility of playing a role in the M6 process is something that is in line with our strategy. We would like to be happy to participate in the process, and this is the situation. In any case, you know that all that we are saying. There are some rumors that a local solution is probably the most likely about the M6 deal. So this -- I see unlikely that Mediaset España could be the final bidder in this process. Let's say that they are at a maximum, it could be an outsider in this process, and this is the situation. It will be -- I think that it's our duty to look at every opportunity, the M6 one or any other opportunity that can arise in Europe about the possibility to grow. And this is our objective in this moment.

[Fernando Cordero Barreira, Equity Analyst]

And just as a follow-up, considering that the agreement with Vivendi and Mediaset Italy is including extraordinary dividend at the Italian parent company, do you expect this to drive a change to your mind in coming quarters regarding shareholder remuneration?

[Massimo Musolino]

I think that -- look, next week, Mediaset Italy will have a conference, and I'm sure they will provide more information about this. I think that in this moment, we don't have, on our table, this kind of problem honestly. I don't know if the fact that Italy is willing to distribute a dividend can affect our company. I personally think that it's not an issue for us. This is not going to change our approach to our shareholder remuneration policy.

[Operator]

And your last question comes from Richard Eary from UBS.

[Richard Eary]

I had sort of 3 questions, the one was on pan-European consolidation, which you just talked about. The other one's cost, which you've obviously disclosed. So it just leaves one other question. Just on -- in terms of current trading, can you just give us the numbers for April, May, June and July last year, so we can understand what the comps are in each of those months? Obviously, you've given the rebound this year in April and May, but it would be nice to just get a month-to-month decline that you posted last year in each of those months, so we can get a comparison, please. Hello?

[Quico Alum, General Manager of Publiespaña]

I don't have here exactly figures for May and June. But the worst month of last year was April. May was a little better, we can say better than April. And June was better than May. They're both [ better than ] April for that. The market growth in April, 150%; and May, 100%; and in June was really better than May. I don't have the exact figures, but I -- in my [ theory, half ] is for example, April was 100, I think May was 150 and June was 170, something like that. I don't have exactly the figures, but it'll be something like that.

[Operator]

Your next question comes from Stefano Gamberini from Equita SIM.

[Stefano Gamberini, Analyst]

It is more or less the same. Just to understand, compared to 2019, the month of April '21 is above 2019 April and of how much? The same on May, in order to understand if the first quarter 2021 could be above 2019 or below that level.

[Quico Alum, General Manager of Publiespaña]

So I've got this at kind of [ test ]. In April 2019 was 3%, 4% above 2020, more or less. Yes, yes, it was something like that, yes, 3%, 4%. In May 2019, really, May was really strong. And then I think that -- I don't exactly -- I don't have exactly the numbers, but in 2020, May is going to be lower than 2019. I don't know how much. But in any case, this comparison is not totally fair. Because there is the EuroCup in June. And when you have that, you have a shift -- the investment moved from May to June. And then I think June is going to be a really strong month, at least for us, because we will [indiscernible] and for the market. But the comparison is cannot be doing month-by-month. The month I know is April. And if you have around 3%, 4% less in the market than 2019, and that is the position how I can give you at this moment. But remember that in 2019, we have an event, and we have this year an event, and for that, June is going to be a really strong month in terms of the market size.

[Mario Sacedo Arriola, Head of Investor Relations]

Thank you, Stefano. I guess this was the last question we have pending, and now it's time to close this conference call. Thank you very much to all of you for attending at our presentation. And if you have any further questions, please don't hesitate to contact with Investor Relations department. Have a good day. Bye-bye.

[Operator]

This concludes today's conference call. Thank you for participating. You may now disconnect.