Mediaset Espana Comunicacion SA

MAD:TL5

Earnings Call Transcript 2020-Q3

[Mario Sacedo Arriola, Head of Investor Relations]

Good evening, everybody. Welcome to 2020 9 Months Results Presentation of Mediaset España Comunicación. This is Mario Sacedo, Head of Investor Relations.Let me introduce you to today's speakers. The presentation will be hosted by Massimo Musolino, General Operations Manager. After the presentation, we will open a Q&A session hosted by Massimo Musolino; Quico Alum, Publiespaña General Manager; Javier Uría, the Group Chief Financial Officer. They will answer all your questions. Massimo, you have the floor.

[Massimo Musolino]

Good evening. Welcome to Mediaset España's 9 months results presentation. We will now take a look at the main aspects of the operational and financial figures released to the market just now and some of the most relevant events in the period. At the end of my presentation, there will be a Q&A section, where you may ask any questions that you have.First of all, on Slide 2, let's have a look at the main highlights of the business in the 3 months period to the end of September. Q3 was a recovery period after the extremely challenging months of April and May. As per Infoadex figures, the TV advertising market declined by 3.4%, with Mediaset España posting a market share of 42.4%, widening the gap with our main competitor to 2.7 percentage points.Audience share remained strong at 28.5% in total individuals, which is more than 2 percentage points gap versus our main competitor. It's remarkable how September was the 25th month in a row where Telecinco is leading the audience share among all national channels. In terms of financials, Mediaset España maintained the business resilience showed in the previous quarter, with an increase of 23.3% in EBITDA level to EUR 50.1 million. This figure implies an EBITDA margin of 29.4%.Total net revenues amounted to EUR 171.5 million, where the increase of other revenues partially offset the decline in TV advertising revenues. Management of operating costs remain key with an almost 12% reduction in the period across all different OpEx lines. A good quarter, a good quarter, probably one of the best over the last year in spite of the tough condition of the market.On Slide 3, you can see the same figures for the 9-month period. As reported by Infoadex, the TV advertising market declined in the first 9 months of the year by 24.4% driven by the effects of the pandemic, which were extremely tough in April and May when the market fell by more than 50%. After this period, advertisers came back to the market, adapting the behavior to the new environment and the market normalized, but is still affected by high monthly volatility.A good example of this is when, according to Infoadex figures, the market increased by 0.4% in July, declined by 1.9% in August and 7.3% in September. We don't know how the rest of the market performed. But if you look at our revenues, October appears to be much better than September.Audience share in the year stood at 28.6% in total individual, which is a 2.7% gap versus our main competitor. In terms of financials, Mediaset España total net revenues amounted to EUR 546.6 million, which is 17.3% lower than the same period last year. More than half of the revenue decline was offset by our active operating cost management, which brought cost savings of more than EUR 60 million. As a result, at the end of September, EBITDA stood at EUR 150.1 million, while net profit reached EUR 103.2 million.Cash generation in the 9-month period amounted to EUR 119.8 million. And net cash position moved into a positive figure to EUR 25.1 million as of September.On Slide 4, you can see in the first 9 months of the year that the daily average total TV consumption per person per day was 239 minutes, which is the second highest TV consumption record ever, only after 2012 and 2015, both with 241 minutes per person per day.Also, compared to the same period last year, TV viewing time has increased by 8.8%, up 19.4 minutes per person per day. The figures do not include television viewed on devices such as tablets, mobile, computers, et cetera.In the first 9 months of this year, TV linear consumption amounted to 252 minutes, which represents 97.1 of the total average TV consumption. The nonlinear TV consumption in the first 9 months reached 7 minutes per person per day, which represents almost 3% of the total TV consumption in the period.With these figures, television -- linear television has proven throughout the COVID-19 crisis to have a relevant role in homes, being a reference for information and entertainment amongst the population. Even when the health care situation normalized as it did over the summer, TV consumption continued its positive performance versus last year. It's clear that the lockdown helped increase TV consumption, but it also emphasized the central role of linear TV in such a situation.Moving now onto Slide 5. You can see how our TV advertising revenue evolved during the period. We posted a 16% GRP's volume decline. While in terms of prices, we saw a reduction of 10.6%.As Infoadex reported, Mediaset España TV advertising revenues amounted to EUR 459 million, EUR 26.1 million more than Atresmedia, equivalent to 5.7%. This year, September, September last year revenue that were accounted for last September from the World Basketball Championship which Spain won, it was an important contributor to last year's revenues.The chart on Slide 6 gives you a visual explanation of how the company has been adjusting its operations to the new reality of the audiovisual market. Other revenues in the period went up by 72.8% to EUR 76.4 million or 14% of the total net revenue generated in the period. This great performance partially offset 1/3 of the net advertising revenues decline posted in the period.On the right-hand side of the slide, you can see sale of content stands at 43.8% of the total revenue figure. This activity is improving year-after-year as proved by the huge increase in 2020, amounting EUR 33.5 million from January to September, which is almost 4x the figure reached for the same period of last year.This excellent performance is the result of Mediterraneo Audiovisual content sale activity, which, for example, reached an agreement with Netflix and Amazon Prime to sell them 6 of our most popular fictional series and documentaries. The sublicensing of the Copa del Rey football rights [ 2000 ] as well as content services provided for national and international third party have also helped increase this revenue line.I want to remind you of the fact that Mediaset continues to be an independent player. We are not tied into contracts to create and develop new content. We maintain our flexibility and capacity to take every opportunity that the market has to offer.On Slide 7, you can see Mediaset España digital activity. During the year, Mediaset has achieved a monthly average of 18.3 million unique users, a growth of 17% compared to the same period last year. This figure doesn't include September, the figures of which have not been published by ComScore yet.In terms of video consumption, the group reached a monthly average of 350 million video streamed, which is 50% more than our main competitor. mitele.es continues to be the most demanded TV OTT platform, with a total of almost 1.7 million video streamed since the beginning of the year, over 50% more than our main competitor.At the end of September, our SVOD platform, Mitele Plus, had 130,000 subscribers. The latest projects, ElDesmarque and Nius sites, also we just have to mention due to notable results during the period. ElDesmarque has managed to double its audience compared to last year, with a monthly average of 4.9 million unique users. Nius has reached a monthly average of 3.1 million unique users in only 1 year. Our objective now is to reinforce this new line of business.On Slide #8, you can see how we are developing some digital -- our digital strategy. As we announced in the -- our last earnings call, we acquired a 51% stake in BE A LION, which is not a [indiscernible]. It's a company that creates, produces and distributes content and advertising initiatives for brands and agencies on platforms such as YouTube and social networks, maximizing the impact and the reach of traditional campaigns. BE A LION will contribute to net revenues and a healthy EBITDA margin.A few weeks ago, Mediaset España and BE A LION launched the first joint initiative for Reach Media. Reach Media is a transversal ecosystem that aims to unify the commercial strength of television content and the digital environment, with the purpose of increasing the possibilities of consumption, coverage, visibility and [ prescription ] for brands. The new commercial model unify Mediaset España's experience as a generator of audiovisual content with the highest levels of engagement, visibility and coverage and BE A LION's knowledge of the major current trends in omnichannel communications and [ prescription ] in the digital environment.With this proposal, advertisers will have, at their disposal, a new model of cross-media planning based on 3 fundamental pillars. The first, a homogeneous offer of premium video, capable of offering visibility to advertisers up to 4 or 5x more than that offered by display of streaming video; second, guaranteed brand safety environment, explained beyond Mediaset España on media, thanks to BE A LION's experience in planning campaigns in a safe environment; and finally, coverage capable of efficiently reaching 100% of the population in any of its targets, reducing duplicated impacts to a minimum and optimizing the investment to the maximum.With regard to our OTT platform, in September, Mitele Plus launched Solo/Sola, the first 24-hour live format produced internally by Mediaset España and only available as a premium content. Another Mitele format, Love Island, is also the most demanded content on digital since its premier at the end of September.At the beginning of August, the Mediaset España group launched a new initiative, Mitele CLUB, free to all users of Mitele Plus, with an annual subscription package that offers exclusive experiences related to the group's programs and stuff, special promotions, access to rebates on the Mediaset España community, et cetera, which today has over 20,000 members.We are also adapting our services to the new reality. We are creating a special space for events such as concerts on our OTT platform, which will be provided on a pay-per-view basis.Finally, in October, we have also launched the special channel, 007 channel, with 25 movies. The Mitele online store, Comercial -- Mitele Comercial Center for annual subscribers, will go live in November. This exclusive store will have a promotion, discounts and experiences for our customers, and will be open to everyone.Mitele Plus will offer new content in the coming months. In fact, we are looking not only for new linear channel negotiation, but also for new VODs or production only for our subscribers. In fact, for the same [ portfolio ], we will continue with our exclusive 24-hour reality show, Solo/Sola. This program, just to give you an information, has been nominated as a fresh TV format, at least from 2020.Moving to the financial review on Slide 9. You can see how we adapted our operating costs to the advertising market reality this year. On the right-hand side of the slide, we have a statement from the last result presentation, where we said cost savings achieved in the first half of the year will be consolidated and we could make further savings if market conditions require. These cost savings in June amounted to EUR 44 million against the previous year. At September, this figure has been increased to EUR 60.2 million, achieving [indiscernible] our commitment.On the left side of the slide, this is a visual explanation of the OpEx performance in the first 9 months of the year, where we managed a 13.2% reduction across all OpEx lines. Our continued effort allow us to feel positive about our flexibility in cost management in the new advertising market condition and also to renew our objective to adapt our cost base if market conditions become worse than they are today.On Slide 10, there is a quick review of the cash generation and margin evolution during the year. The quarterly breakdown shows the company's strong position, which allow us to generate cash even in a stressed environment.As an example, in Q2, where the company revenues decreased by more than 43%, Mediaset España generated EUR 13.5 million. As far as the market returning to more or less normal, as in Q3, which is the weakest quarter of the year, cash generation increased to EUR 32.4 million.For the rest of the year, we remain confident about maintaining our cash conversion rate and generating a healthy amount of cash to reinforce our balance sheet and financial position, while at the same time, we are able to take different market opportunities and projects with our own resources. In terms of margins, you can see that the business model resilience and stability is remarkable. Revenue diversification and operation cost management allow us to maintain them well above 20%, even at the worst point of the pandemic. As a result, in the first 9 months of the year, the EBITDA margin stood at 27.5%, one of the highest in the business.Concluding this presentation on Slide 11, I would like to provide an outlook for 2020. We are now facing the last quarter of the year. Of course, we aim to remain leaders in terms of stability, audience and advertising market share. This is our main target for the year, and as you can see from the figures reported, we are on track.Secondly, as we saw in previous slides, the acquisition of BE A LION and evolution of our key performance indicators in the digital area shows our commitment to the delivery of strong digital capability as part of our future strategy. We still remain open to new market opportunities while we reinforce our existing initiatives.In terms of costs, we proved once again our flexibility to adapt our cost base to market conditions. Over the past few months, we have learned how the advertising market is linked to the evolution of the pandemic. And we have adjusted OpEx to the different conditions that affect the advertising market, and this is in the first 9 months of the year.Continuing to repeat our commitment to adjust our operation is required in order to ensure our profitability even if the market deteriorates again due to worsening health care conditions. We want to reiterate our firm decision to conserve a strong financial capability as a way of maintaining normalized operations and also to take the potential corporate opportunities that arise.And finally, a few words regarding the MFE project, although we had to shut down the initial project due to calendar limitation imposed by the Spanish Court, we are working on a way to relaunch the Paneuropean consolidation project, something which has been confirmed in the current market, [ it’s constant ] is more necessary than ever.And now let's move to the Q&A session.

[Mario Sacedo Arriola, Head of Investor Relations]

Thank you, Massimo. This is the end of our presentation. We are now ready to take your questions. Operator, please, let's proceed to open the Q&A session.

[Operator]

[Operator Instructions] And your first question comes from the line of Fernando Cordero from Banco Santander.

[Fernando Cordero Barreira, Equity Analyst]

Can you hear me?

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

Yes.

[Mario Sacedo Arriola, Head of Investor Relations]

Yes, Fernando.

[Fernando Cordero Barreira, Equity Analyst]

Okay. Perfect. Maybe just 2 questions on my side. The first one is regarding the contribution from BE A LION in the quarter. We have already understood what has been the contribution in revenues, at least looking to the third-party advertising revenues, but I would like to also understand what is the contribution to EBITDA in the quarter in order to understand also what has been the underlying EBITDA trend in the third quarter from the recurring activities before M&A.The second question is cost outlook for 2021. We -- I partially understand that we -- that it is too early and particularly considering the changing environment. But at least on a qualitative basis, I would like to understand what could be the, let's say, the pattern of the cost performance depending on the revenue performance. So in other words, what kind of OpEx trend should be -- should we expect if, for example, the market will be growing 10% next year or if the market is growing 5% next year. At least, as I said on a qualitative basis, as I understand, it is quite difficult right now to make a quantitative guidance.

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

Okay. On the first question on BE A LION, as you know, this is a company that we have consolidated since the 1st of July. I think, at the last call, we said that we were going to have revenues of around EUR 15 million. That's more or less what we think is going to be the case. This is a margin-positive company. It has been margin-positive for quite some time. I mean this is not a start-up. It has good margins, and we think that with this amount of more or less EUR 15 million in the year, we're going to have a positive margin, too.Just to give you an example. This is a company and one of the few ones that I have seen, that in the second quarter, had a positive margin. Just to give you an example that we're not talking about a start-up, we're talking about a solid company. And more or less, these are the metrics, that we're going to have a positive contribution, both in terms of revenues and in terms of margins.On the second question on the -- how are we going to adapt to the market conditions. Like I think we have said before, we don't have a matrix in terms of if there is a decline of 1%, we're going to have a cost reduction. But I think that we work on this on a daily basis, on an online basis. And of course, we'll keep an eye on the market. And if the market, depending on how it goes, we will adapt our cost base as we have done in previous years and as we have -- as I think we have shown already, that we have been doing this year.So it won't be anything new. It will be just kind of to see what's going on in the market and take the decisions to make sure that we keep our margins alive and as high as possible.

[Fernando Cordero Barreira, Equity Analyst]

Right. Just a follow-up. Should we expect that the margin from BE A LION could be similar to the current consolidated margin or at least a bit below these kind of margins?

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

Look, Fernando, we're only going to invest in companies that have the same margins as we have. We will not be doing anything. So you have to take into account that not everybody has the same margins. I'm not saying that it's going to -- but, of course, it's positive. It's not the same as ours, but I can tell you that it's a very good margin for the sector and for the activity of the company.

[Operator]

Your next question comes from the line of Ned Balderstone from Goldman Sachs.

[Ned Balderstone, Research Analyst]

I have 2, please. Firstly, just on the current trajectory of the advertising market following quite a strong rebound in summer, I'm just wondering what trends you've been seeing in September as the COVID situation worsened. And then into October, what are the current trends you're seeing, and how are you thinking about the outlook heading into November, December? So that's the first question.And then the second question is on the other revenues. Obviously, the content sales components of other revenues have been quite strong this year so far. And I'm just wondering how sustainable we should think about that revenue line into 2021. Can we expect you to continue to deliver this really strong content sales numbers on an ongoing basis?

[Quico Alum, General Manager of Publiespaña]

Okay. [indiscernible] about the market in October, as Massimo had to say in September, October is much better than September, at least for us, so I cannot speak in the name of the market because I don't know the total market. I can't say what is happening with the latest figures. And in this stage, we can say that we are -- I think we are beating [indiscernible] of the market.Clearly, for us, October is going to be a good month and is more really almost flat in this case in October for us. This is good news because September was -- the drop was around 7%. And the market in October is much better than September. And for us, it's going to be almost flat. That is a great number in this situation.About November and December, I think in this -- the actual, we can say, health situation is impossible to anticipate anything. The situation changes every week. We will see how the new restrictions affect us. There is no way of knowing that.But it is clear that we follow the figures reported every month, along this year, is that the TV market responds [ yearly ] to any sign of improvement, even if it is slight. And this is one important thing. A very important thing, that in November, we have the Black Friday and in December, we have the Christmas. They are very important events for a lot of clients, and they have to put all their money there because their sales are, in this period, really important.But we have to wait for the health situation in this moment. That is not clear. People who live in Spain, we know that, and we'll have to wait for that. And then I cannot say anything about November and December. We'll have to work week by week. But of course, like always, we are optimistic about the evolution of the situation.

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

As far as sale of content, like I think we said in the last call, we're talking about the recurring business, but it is not a linear business. Typically, you have deals that we sign, and you sign it at different points in time, but this is a recurring business.I think that we also gave some guidance for the year, not for sale of content, but for the other revenue line, that it was going to be moving close to EUR 100 million. Now as for next year, of course, the sale of content, we first have to do the production of this content. And for next year, you have to think that we have halted basically all the production for the months of the pandemic.We have resumed now, but only very, very recently, some of the new series. And of course, at least in the earlier part of 2021, we're not going to have the same array of content ready to be sold because of the restrictions and because of the difficulties that we have this year. And that's why we cannot make a comparison or we cannot give a guidance for next year in line with what we have seen this year because of this specific situation.Once we have more visibility as to what's going to happen next year, we will shed some light on that. But the important thing is to bear in mind that this year should not be a benchmark for what is going to happen next year, but because things could change, and we have to go over these months in which nothing has been produced really.

[Operator]

And your next question comes from the line of Nizla Naizer from Deutsche Bank.

[Nizla Naizer, Research Analyst]

I have 3 questions, if I may. The first is on Q3. Could you kindly remind us how the 3 months progressed in the sense of what was the magnitude of recovery in July versus August versus September? You gave us some color. A little more detail there would be great.And secondly, when you look at sort of the next 3 months and the conversations you're having with your clients, could you remind us what are the sort of conversations? Is it catch-up money previously -- that your advertising clients couldn't spend in Q2 that is now flowing into Q3, TV in Q3 and Q4? Is it new campaigns all together in a bid to sort of spur spending? Some color on sort of the industry flavor that you're getting with the conversations you're having with the sectors would be great.And lastly, on Mitele, could you remind us if you're satisfied with the progress of the subscriber numbers? Because when you look at Q2, it seems like there's a decline sequentially from Q2 to Q3. Is there a reason for that decline? Is it typical seasonality? And do you expect it to sort of bounce back in Q4? Some color on the Mitele subscriber numbers would also be great.

[Quico Alum, General Manager of Publiespaña]

Okay. About the last part of the year, in the sectors, we have 3 really strong sectors now. Insurance is a really, really strong sector now. We have a lot of clients. And I think that is a new money. It's not -- it's new clients. They are now in TV, on TV. We are talking about a big company, insurance company. And I think this is a new sector in these conditions, health conditions. They are buying campaigns for that period of the year.The other sector which is really a dynamic sector is the telecoms sector. And I think that is all again is because they need to invest money now, the telecoms sector.And the last sector of this 3 is retail. About this -- the other question is on money, and they have to, I mean, to save in the first part of the year and another one is to invest in advertising. It's not clear. We don't -- I don't have this answer, but it's one -- there's one important reason that you cannot, if you are a really important brand, you cannot be out of TV for a long period of time because it's really dangerous. I mean you have to be in TV. You have to make a brand. You have to support your brand. You have to invest money. You cannot be out of this work for 1 year. This is really dangerous for the brand and for the company. Then these companies, they have to invest some money. But of course, the situation is the situation. We plan to keep that in mind.About the sector of automotive, in this case, we have some car companies that we are investing more money now and others, not. It's not a real homogeneous behavior in this sector.Then I don't have the answer if new money is [ helping ] money. For me, insurance, telecoms and retail is new money because they are making campaigns, and the things are going good, not bad.And the other investment in our companies, for example, we have beverage, and that is really, really a sector that we have a lot of problems because of all the restaurants, I mean, all the holidays, all the hotels are closed. And then they have other problems with that. And you have to wait for this, for example, for this sector. But I don't have exactly the answer for that.

[Massimo Musolino]

About Mitele Plus subscribers, if you attended our last call, I said that there were, at the time, at the end of June, 100,000 subscribers at the football. And if I remember well, there were 63,000 subscribers at retail. At the end of August, we discontinued the football rights. We didn't buy the rights, the channel of the new season of the Spanish La Liga and the Champions League because the cost of these rights was very, very high. It was absolutely impossible to do a successful business with this cost. So we didn't buy the rights.And now we -- in Mitele Plus, you have many other content, different football. So this is why the number of subscribers is lower. Summarizing, we had 63,000 subscribers at Mitele Plus in June. And now they are 138,000, if I remember.So what we have done during these couple of months is to prepare many other kinds of programs and channels, there's the 007 movies, the Mitele CLUB or many other initiatives to try to maintain the football subscribers. We can say, at this date, that we have been able to maintain 50% of these football subscribers. This is why the numbers are reduced.We are happy with this number. Of course, though, we have to increase this in the next month. So we have different ideas, different projects. Of course, the general COVID-19 environment has reduced our possibility to start new initiatives because, at the end of the day, we are in an emergency. We need to save money everywhere.But we think that between the end of this year and the next summer, we will be able to increase the quality and the quantity of the programs on Mitele Plus. And this could be a good reason to increase the numbers.

[Nizla Naizer, Research Analyst]

Very helpful. If I could just ask, my first question was on Q3 and the monthly sort of performance of the television advertising revenue. Could you give us some color as to whether it was positive in July, also in August and then negative in September, some color there?

[Quico Alum, General Manager of Publiespaña]

Okay. The -- I mean the market was completely different in amount this month, and due to July and August, we can say we are almost flat, something like that. In September, remember that last year, we had the European Basket, where the Spanish side was the champion, and it was very, very important because we were the champions, of course. And in September, we are talking about minus maybe 7%, something like that.And in October, we are talking about our current situation. We are going to be almost flat, is our figure for these 4 months.

[Operator]

And there are no further questions at this time. [Operator Instructions]

[Mario Sacedo Arriola, Head of Investor Relations]

Okay. Thank you. I guess there is no more answer -- no question pending to be answered, then it's time to close the conference call. Thank you very much for attending at our presentation. And obviously, if you have any further questions, please don't hesitate to contact with the Investor Relations department. Thank you.

[Massimo Musolino]

Bye-bye.

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

Goodbye, everybody.