Mediaset Espana Comunicacion SA

MAD:TL5

Earnings Call Transcript 2021-Q3

[Operator]

Good day, and thank you for standing by, and welcome to the Mediaset España Third Quarter 2021 Results Presentation Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded today. And I would like to hand the conference now to your first speaker today, Mr. Mario Sacedo. Please go ahead, sir.

[Mario Sacedo Arriola, Head of Investor Relations]

Hello. Good evening, everybody, and welcome to 2021 9-month results presentation of Mediaset España Comunicación. This is Mario Sacedo, Head of Investor Relations. As usually, we have schedule for today our presentation is hosted by Massimo Musolino, General Operations Manager. After his presentation, it will be a Q&A session where Massimo, Quico Alum, who is Publiespaña General Manager; and Javier Uría, company's CFO, will answer all your questions. Massimo, you have the floor.

[Massimo Musolino]

Hi. Good evening, all, and welcome to Mediaset España's 9 months 2021 presentation. I will begin the presentation by going over our main operational and financial figures for the period. And you will have the chance to ask any questions in the Q&A section at the end. Let's start on Slide #2, with our traditional quick review of the main figures in the first 9 months of this year. As you know, one of Mediaset España's target for the year is to maintain the audience share leadership position in the Spanish market. On the top right-hand side of the slide, you can see that our audience share reached 28.5% to September. This is a gap of 1.2 percentage points compared to the second player. Following the figures reported by Infoadex, the total TV advertising market bounced back by 15.3% in the first 9 months of the year, with Mediaset España reaching a leading market share of 43.2%. We are clear leaders with a gap of 2.5 percentage points compared to the second player. If you look at the total Spanish audiovisual market, Mediaset España's market share in the first 9 months was 29.9%. Moving on to financials. On the left-hand side of the page, total net revenues in the period increased by 10.5% to EUR 603.8 million. Operating costs amounted to EUR 451.4 million. We will elaborate later, but the 15.8% (sic) [ 13.8% ] increase cannot be considered as a comparable figure due to the pandemic lockdown situation in the same period of last year. Probably the most significant figure was the 1.2% decline versus 2019 in spite of the fact that we -- this year we have the EuroCup costs. EBITDA for the period amounted EUR 152.4 million, which represents a 1.6% increase on last year. This operational performance should be considered outstanding, taking into account the fact that, as we already mentioned, they include the European costs. Net profit at September increases by 10.6% to EUR 114.2 million. Slide 3 shows the results of the efforts to monetize our audience share in the first 9 months of the year. On the left-hand side of the slide shows how our commercial target improved in the year, thanks to the balanced programming grid that we scheduled. The key point to look at here is the evolution of the conversion rate from audience share to commercial target. Although the audience share in terms of total individuals was leveling off, the positive conversion maintained its accelerated trend and it has [ presently ] being able to point. On the other hand, the second player has a commercial target share below its total individual figure. We are actively managing our content in order to maximize this conversion, which is a key element for increasing prices. The graph on Slide 4 illustrates the evolution of our group channel positioning compared to our competition during this year. The graph is based on figures from Kantar for the period between January to September '20 and '21 -- 2020 and 2021. On the horizontal axis, there is a line with the age, while the vertical axis represents the affinity of the viewers. Affinity is the capacity to convert audience into commercial target. Commercial target is important because it allows us to be more valuable for our advertisers. It allows us to increase prices and be more effective. The commercial target includes those individuals from 16 to 59 years old that live in areas with a population of more than 10,000 inhabitants and belong to all but lowest socioeconomic index. Now looking at the graph, you can see that, in 2020, TV targeted the older and less commercial audiences, while Mediaset España and Atresmedia competed for the younger audiences and more commercial target. It's clear that there has been a shift over the last year. And now Atresmedia is moving towards an older audience and less commercial target, which has always been TV's territory. Mediaset España has reinforced its content proposal for younger audiences in order to capture a larger share in this highly-priced segment. We are devoting a lot of resources, both human and financial, to creating a long-term loyalty link with younger viewers, thanks to a well-balanced programming grid based on in-house production. In contrast, our competitor's approach is geared towards Turkish fiction and soap opera, which is aimed at a different audience group and allowed us to increase prices compared to last year, not just because the market conditions have improved, but also because our proposal is more valuable in relative terms. As a result, we are confident that we are on track to offer advertisers a high value proposal in coming months. It's also remarkable how relevant this strategy is for the sector, because, in our view, this is the only way to defend commercial linear TV against the new platform. If you want to engage younger people long term, we must put on our proposal on the left side of the graph, rather than focusing on the short-term profitability by offering aged and old fashioned content. Moving now on Slide 5, it details our TV advertising performance in the beginning of the year. As Infoadex reported, Mediaset España TV advertising revenues amounted to EUR 530.7 million, reinforcing the leadership position in the TV advertising market. This gap with our main competitor led to an accumulated TV advertising market share of 43.2%, which is 2.5% higher than theirs. As we saw in the previous slides, the reinforcement in our commercial target is key for building a strategy based on price as a fundamental pillar of development. This can be seen in the table, where the price evolution in the quarter saw an increase of 4.7%. This figure is even better when we look at the number from January to September, where the price increase reached 5.4%. In conclusion, all of the above are clear indicators that the market, with some temporary effects such as the automotive sector, is recovering. And our convention of investing in quality content for coming months is the right decision, not only in terms of total individual audience, but also in terms of improving the commercial target. On Slide 6, I want to highlight the successful digital strategy that we are developing. So regarding Mitele PLUS, we have increased the number of subscription to platform, which brought a new record high in October, with almost 214,000 subscribers, which is 95.9% increase compared to December -- to the end of December 2020. Some of the factors behind the successful performance include the fact that we have streamed exclusive content, some of which 24 hours a day in linear mode, such as previews of TV series and TV shows. We also have a powerful offer in the basic soap opera package and the -- on top channel integration, like the Fight Sport channel, Acontra+, a specialist channel, which has over 240 movies, and a new channel, Dizi section, with some mini Turkish fictions. We continue to develop the platform and we have various milestones set for Mitele PLUS in the next months. For example in November, we will reinforce the platform distribution process to increase coverage, incorporating Movistar set-top box to supported devices. Before the end of the year, Apple in-app purchases will also be available. And last but not least, we have new features coming up in our road map for the next year, including the recommendation engine and the new exclusive Mediaset production and channels. Looking at the digital business as a whole, the performance of different units in 2021 is proving very successful. The organic growth of Mediaset webs is maintained and the participated companies, ElDesmarque and BE A LION, showed a growing trend, both in revenues and profit. As a result, digital revenues for the period, which include advertising revenues, subscription fees and other digital revenues, amounted to EUR 44.9 million, growing 19%, 1-9%, compared to last year, almost doubling the EUR 25 million reached only 2 years ago. On Slide #7, you can see how the company has been managing the cost base over the last -- until last year. As I mentioned before, it's quite evident that 2020 is not a valid reference because of the pandemic. The correct reference and the comparison should be made with 2019, a more normalized year. The EUR 451.4 million recorded in the first 9 months of 2021 is a good example how we are actively managing our OpEx in the long term. If you compare the figure with last year, in which there was a EuroCup, or Euro 2016, our OpEx stands at EUR 75 million or 14% lower than then. Furthermore, if we compare the 2021 9 months OpEx with the same period of 2019, the fair comparison base, our cost remain lower, even including the EuroCup cost in the calculation. On Slide #8, you have a summary of the group financial performance [ and the total result ] of the year. On top of the page, we have the free cash flow performance for the last -- for 9 months period, which, through the exception of 2020, for obvious reasons, shows stable figures situated between EUR 168 million and EUR 182 million. In terms of the ratio between free cash flow and EBITDA, the percentage are also stable and close to 100%. The exception to this year is a ratio of 119%, which is explained by a deficit on investment in content in both 2020 and 2021 as a consequence of the pandemic. In other words, a time difference, which we expect will be corrected in future quarters when investments move to more normalized levels. At the bottom of the slide, we have the group net financial position. You can see that at the end of September 2021, it was EUR 202 million, which, together with the credit lines that we had in place, are evidence of the group's extremely sound financial position, an important asset to pursue possible investment opportunities, which could be added value to the business, both nationally and internationally. On Slide 9, we would like to mention some of our achievements and the projects that we have developed in terms of ESG throughout the year. Something that we started a long time ago was the voluntary project that Mediaset España is committed to, that the offsetting of Scope 1 and 2 residual emissions by financing project aimed to reducing greenhouse gas emissions and reinforcing carbon sink. As a result of these types of environmental commitments, we are proud to have been named as one of the 23 Spanish companies in The Financial Times ranking over Europe's Climate Leaders 2021, which is composed of 300 European companies that achieved the greatest reduction in greenhouse gas emission intensity.We also tried to push the best social values through our programming grid and content distribution based on gender equality, diversity, environment and climate change and welfare management. In Mediaset España, we offer free advertising space to non-governmental organization to increase visibility of the projects. And also we traditionally devote some space to social campaign, such as the [ Willmore Docemixes ] where we try to raise our message about sensitive topics in society. We are also very proud of the fact that we are the only Spanish media group with an AENOR COVID-19 certification as a result of the best practices and measures taken to protect our staff and the operations during the outbreak. The health and safety of our employees and third parties that work on site at Mediaset's installation is of paramount importance too. And finally, on Slide 10, before we move on to the Q&A section, let's have a quick look at what could happen in the last quarter of the year. In terms of audience, after a slow start to the season, we have been progressively launching the autumn programming grid. October confirmed Mediaset's leadership with Telecinco as the fifth channel. So we are on track to achieve the objective of audience leadership. Also in terms of advertising market share, we are heading towards a new year of leadership with price increases, thanks to a better audience profile. Also in digital, we are moving towards a record year, due not only to the advertising revenues, which are growing more than the market, but also to the increase in Mitele PLUS subscribers. The gradual return to the normal programming grid and working from home coming to an end means that our cost base is also increasing compared to 2020. We predict that we will remain somewhere between the 2019 and 2020 figures. We also expect to generate cash and accumulate financial resources to take advantage of potential opportunities that may arise in our audiovisual world, where there is a lot of simmering. And now, thank you very much. We can move on to the Q&A section.

[Mario Sacedo Arriola, Head of Investor Relations]

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 right now, we will now take our first question, and it comes from the line of Annick Maas from Exane BNP Paribas.

[Annick Tonie Maas, Analyst]

My first question is on ad trend for the next quarter, if you could comment on those. And particularly also highlight the key advertising categories. How they are performing? That would be interesting. Secondly, so if I look at your share of in-house produced content back in 2019, Cuatro in-house produced content has risen. How can you get on the Cuatro channel to the same level as what you have on Telecinco? And if so, in how much time will you be able to do that? And then just on other revenues, if you could also give an indication for Q4, that would be helpful.

[Massimo Musolino]

Okay. What we mean about the market, in October, we estimate that the market is going to be more or less flat, and it's going to be unexplained mainly by the lack of auto investment. But on the other hand, we have sector as retails and beverage that they are performing really well. If we want to have an estimation about the quarter, I think it's too early to say that. But keep in mind that the strongest part of the quarter by far in terms of investment is at the end of November with the Black Friday. And for this period, we are still negotiating some important campaigns. And of course, there is [ enough ] period. Then we have to wait how it's going to be the upside, and we expect that it's going to be good. And the other thing is that the negative impact of the automotive sector is going to decrease as we go to Christmas, as we approach to this period. Then we hope that November and December we don't have now enough information, but we have to wait for that.

[Quico Alum, General Manager of Publiespaña]

About the level of in-house programs in Cuatro channel, we are working hard to increase the percentage of in-house program in the programming grid of this channel. Of course, it is not an easy task because it's not easy to find new program at a reasonable cost that can achieve the targets and the audience level that we need for this channel. Cuatro -- in Cuatro, it is not only a problem of quantity audience. It's the quality of audience because probably, Cuatro is our -- in term of commercial target is our best channel. In this sense, we hope to be able to increase the current 76.4 percentage in Cuatro. But honestly, it's very difficult to say how long we need to achieve the same level of Telecinco. What I can ensure that we continue to try to increase especially in Cuatro and we will continue in the next years.

[Mario Sacedo Arriola, Head of Investor Relations]

Sorry. I think the third question was about other revenues?

[Annick Tonie Maas, Analyst]

Yes, exactly.

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

Yes. What we have in the first 9 months of this year is that the order revenues have come down versus last year, and there is a couple of reasons here. The first one has to do with the movies. Movies, we -- last year, we did not produce much. We did not produce anything. But we still have the revenues of the films that have been released either in the last part of '19 or in the first quarter of 2020. Secondly, we have less sale of rights. Last year, that was a record year in terms of sale of content because we had the content. This year, we still have some content, but, of course, we have not been able to produce more because of the pandemic. And you also have -- and that's why you can see the reduction there. And finally, you have the impact of the Mitele PLUS football subscribers that we have for the season running until December of 2020. But obviously and despite all the improvements and all the things that Massimo was talking about, we still feel that less revenues because of the price that the football subscribers pay for that. So that basically explains the kind of EUR 20-something million reduction between the 9 months of 2020 and this year.

[Operator]

[Operator Instructions] Our next question comes from the line of Fernando Cordero from Banco Santander.

[Fernando Cordero Barreira, Equity Analyst]

My only question, which is not going to be very original, I just would like to share your views on the capital allocation and particularly considering the recurring strong cash flow generation of the company. What should be the -- your understanding for using that cash in the coming, let's say, quarters? And I would just end this flexibility for new opportunities may also include dividend payments for minorities.

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

Yes. Fernando, probably the best thing here is to think in terms of, first of all, of what the capital allocation policy has been in the past, which was always look at investment opportunities, look at the commitments, look at the business in Spain. And after you have done that and you have the money, you just distribute it to the shareholders. This year, at the beginning of the year, what we said is that this analysis of new investment opportunities at this particular time was very significant because there were business opportunities in the market in general terms and we didn't want to miss out on that opportunity. And this is something which is still ongoing. This year, we have been looking at investment opportunities, both in Spain and outside of Spain. And although at the end of the day, we have not been able to find so far anything which meets the criteria that we have and we have not been able to do it. But it's something that we're really still doing, and we're saying that keeping this financial strength is something that is very important. And although we do not have anything in the pipeline now, we keep looking around and this is going to be in the following months, right? So we want to keep this capacity not to miss out on these opportunities when they arise.

[Operator]

We will now take our next question and it comes from the line of Fernando Abril from Alantra.

[Fernando Abril-Martorell]

I have a couple of them. First is on free cash flow. So I've seen that you have extremely positive working capital generation as of 9 months above at roughly EUR 70 million and much higher than previous year. So any guidance for how should be working capital by the end of the year? That is the first question. And also linked to that, what are the drivers of this increase of this generation at the working capital level? And then second question is -- again is a follow-up from my colleague on the shareholder remuneration is that -- so it's been over 2 years since you halted dividend payments. And so my question here is, for how long will you, let's say, look around for investment opportunities until you decide to resume the shareholder remuneration?

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

Okay. I'll go with the first one. Working capital, this first 9 months, as you said, is very, very high. It's EUR 68 million, and it's a mix of different factors. The first one is just a seasonal one that we have every single year and is the fact that we had a reduction in clients because what you have sold in the summer months is always much lower than what you have sold in the last 2 months of the year. So that's always there. But this year, on top of that, we have 2 different enemies. The first one is the reduction in the kind of the advance payments that we have made for the EuroCup that was in the accounts of the company at the end of 2020. Whilst it should have been released if the EuroCup had been played last year, but it stayed on. But it has been -- finally been released in June of this year with the EuroCup itself. This is one-off -- this is a one-off element. And the second one-off element have to do -- that I expect and I hope that is going to be one-off, has also to do with the fact of lower sales of content. Last year, we sold our content. Therefore, we had a higher amount of clients, a higher amount there. And this year because of these lower sales, we have a lower amount. So you have a blend here of seasonality plus these one-off impacts that justify and explain this EUR 68 million. Now if we look towards the end of the year, that number is going to go down, right? So it's going to go down. I think I would say that it's going to be positive. Probably it's going to be on the positive side, just as it has been the case in the last couple of years. But of course, while the impact of this specific aspects of the business are not in place, we should be looking for something much lower, not as high as what we have seen at the end of September.

[Massimo Musolino]

About the shareholder remuneration, you were talking about 2 years without dividend, but I would like to remind you that the reason of the 2 year are different. The first year, we decided not to distribute any dividend due to the pandemic and many other companies that I know made the same -- did the same. Last year, and we announced it this February, I personally told you that the decision of the company was to look for growth project in country outside Spain to try a way -- to growth, which -- what we need to do now I'd like to take -- to grow -- to take size because the competition today in our audiovisual market is totally different than 2 years ago. On this basis, today, nothing has changed, in the sense that everything we stated last February is still valid. Right now, we see a lot more in the European media market, with the potential transaction taking place both locally and internationally. So we think that this is not the moment to pay out dividends, but this is the right time to find new areas of growth for our business and for our shareholders. In any case, in February, what we approved 2020-'21 balance, once we have evaluated the market conditions, strategic opportunities and the real cash availability, the Board will make its decision about this issue. I assume that before this date we are not doing anything.

[Operator]

[Operator Instructions]

[Mario Sacedo Arriola, Head of Investor Relations]

Okay. I think there is no more question. Then it will be over then. We can end with this conference call for today. Thank you very much for attending our presentation. And again, if you have any additional questions, please don't hesitate to contact the Investor Relations Department. Thank you. Good evening.

[Operator]

Okay. That does conclude our conference for today. Thank you for participating. You may all disconnect.