Atresmedia Corporación de Medios de Comunicación, S.A. (A3M) Earnings Call Transcript & Summary

Hi. Good afternoon, and welcome to this conference call, which we are presenting the first 9 months of this year, 2020. As usual, the conference call will be hosted by Silvio Gonzalez, CEO; and also Antonio Manso, CFO. After the first -- after the highlights of the period, Silvio will enter into the Q&A session. So with no further delay, I hand the floor to Silvio.

Hello. Good afternoon. Welcome you, and thank you for being -- for attending this conference call. Let as usual, give you the highlights of the year and the quarter. About the advertising market and according to our internal research because we don't yet have the results of Infoadex or Atres. So it's also our research. The advertising market, of course, has been impacted very negatively by the COVID and has declined by 27% in this first 9 months of 2020. Talking about the different markets, the television advertising market has decreased by 25%. Although it is true that in this third quarter, the market has been down only by 5%. Radio advertising market has decreased in these 9 months by 29%. Although in this quarter, it's also better the year and has been down by 15%. And the digital advertising market has decreased by 18%. And in this third quarter, the decrease has been only by 8%. So this -- talking about the market. If we talk about what's been the TV viewing, I think it has been an incredible increase of the eyeballs watching television because the average daily time has been 3 hours and 59 minutes per person, which is very much close to the all-time records, which we obtained in 2014, which was something like 4 hours per day. And this viewing time is affecting all the ages, all the profiles, not only people from 55 and above, but all the ages has been affected and a positive impact has involved all of them. So a very good news in terms of which is the perception of the free-to-air television when people need to be informed. About our group, Atresmedia Television has had a total audience of 26.1%. In the case of Antena 3, we reached 11.5% in the total individuals. In the case of laSexta, we have had an audience of 7.1%, which means an increase of 0.2% compared with the same period of 2019. And the accumulate audience for the -- for complementary channels has been 7.6%. I would like to -- and the right, which has been the performance of ATRESPLAYER premium during this year. We can tell you that in this very moment, we have 289,000 subscribers, which means that we have multiplied by 2.3% the figure we obtained in 2019.

2.3x.

2.3x, sorry. The subscribers we got in 2019 by December. And we are very much beyond our initial goal. Talking about financials. The total revenue has been EUR 581 million, which means a decrease by 19.8%, nearly 20%. Talking about the audiovisual business, the total net revenues has been EUR 542 million, which is a decrease by 19.2%. And we maintained the market share by -- which is in the range of 42% and we obtained the highest power ratio of industry with 1.6. Our television net advertising revenues has been EUR 433 million, which means a decrease of 22.6%. The digital net advertising revenues has been EUR 31 million, which means a decrease of 6.6%. And in the case of content production and distribution division, we have had an increase of 18.7%, coming up to EUR 61 million, which is a quite good result. About the radio activities, the total net revenue has been EUR 45 million, which means a decrease of 24.6%. In the case of the OpEx, as you know, we take a cost cut action plan when we realize of the positive of the effects of COVID in our business. And at this period has been EUR 507 million, which means a cost-cutting of EUR 90 million, which means 15% down on a year-on-year basis, mainly driven by programming, variable cost and the OpEx of all the departments. With all these figures, the EBITDA has been EUR 73 million, which implies an EBITDA margin of 12.6%. Net profit has came up to EUR 40 million, and the net debt has been EUR 180 million versus the EUR 193 million, which we had at the end of December '19, which means our ratio, net debt to EBITDA 12 last month, is 1.3. So very far below our covenants in terms of our creditors. So these are the results of the company in these first 9 months. With the third quarter, which I think has been very positive, if I can say so because, I mean, we are in the middle of this pandemia. But I think that the results has been quite good in terms of results of the company. Let me give you some guidance of how do we see the -- our company and our sector for the rest of the year. Well, it's clear that we are in the middle of an earthquake. I mean the COVID has no solution. And we cannot envisage that there is a clear solution in the near future. And so we do see that according as how we see October, and the next quarter, we do see that the market will be down by 10%. So we do think that for the whole year, the total advertising market will be down by 20% more or less. Although there is a lot of uncertainties because, I mean, with -- I mean, this new uphill of the pandemia and all the new measures that are being taken, we cannot see which will be the impact on our advertisers. But so far, if things don't get worse, I could say that -- we could say that 20% down could be something reasonable for the advertising market. So that means for the last quarter, we expect a market down by 10% as an average for the next 3 months. Well, as we told you in the last conference call, we do say and we stay to what we say there that our cost-cutting will be in the range of EUR 100 million for the whole year. And although, of course, if things go worse, we still have some flexible -- some flexibility so to adapt cost a little bit further. And so that's what we see now and let's hope that all the situation does not affect negatively -- more negative than what had happened in the past that will -- it's something that we have to see every day. We are just in the very, very short term. We can have not any visibility. But so far, I think we are managing pretty well according to the circumstances. And so that's all I can tell you. So we are open to your questions. Thank you.

[Operator Instructions] The first question comes from Julien Roch from Barclays.

The first one is, Silvio, you told us that the market will be down about 20% this year with October down 10%, Q4 down 10%. What do you think is going to be Atresmedia market share in Q4? Are you going to be down 10% as well or are you going to do better? That's my first question. The second question is on cost. You said that EUR 100 million of cost-cutting, but you had some flexibility if things were getting worse. So is your EUR 100 million based on down 10% in Q4 or you'll do better if it's down 10% in Q4? And what's the maximum you can do if, say, Q4 is down 2020? That's my second question. And then my third question is on the other activities, so not TV advertising and not radio. On Page 20, you're highlighting digital and ATRESplayer Premium. On Page 21, you're highlighting your subscribers of international, then you're highlighting content production. I guess if I look at your revenue breakdown, you do have a line for content. But where is going -- where is the Atres Premium growing, for instance, is it in digital? Where are the international channel going? Is it in other? And could we get some revenue indication for those activities?

Okay. About the market share, we will have the same market share we're already having. I mean, it's not dependent on the market, let's say, of how the market is evolving. I think our market share will be more or less stable as it had been for the last month. So it's something in the range of 40.6%, 40.5%. So that will be more or less our market share. We expect that for the rest of the year, for next quarter. About the cost, what we foresee with down -- with the market down by 10%, is that we stick to the EUR 100 million cost-cutting that we have maintained during the first months. Now we are changing our programs in order to be more competitive, more -- and also, we have some programs that we delayed. For us the case of [indiscernible]. So we have some rigidities in this case. But of course, if the market goes a little bit worse than we expected, we can go further in cost-cutting. It also -- I mean, it's something I cannot tell you, which is the amount because it depends on how it's audience evolving, how is our competition doing. So there are some other factors that we cannot control, that we can go a little bit further than the EUR 100 million if the market is not down by 10%, and it's a little bit worse than that. And about in which part of our P&L account, all the things related with ATRESplayer Premium in the content production and content distribution. That's where we accrue all the things related with ATRESplayer Premium.

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

Basically, I had definitely understand that in the current situation, short term, let's say, management is -- if is relevant and even more probably cost-cutting something 2021 and too early. But in any case, I would like to understand that withstand the cost-cutting measures made in 2020 can be consolidated into 2021? Or in other words, what kind of cost -- at least in qualitative basis, what kind of cost performance should we expect in 2021 if the market has a nice recovery? And also related with that, understand also the current content policy, and particularly, what we have seen in the third quarter and with some quite successful low-cost formats in the prime time, I would understand this kind of policy could we maintain going forward?

About 2021, very difficult to -- it's like having a crystal ball, and I don't have it. But it's clear that I mean, all the program costs that we have had this year are not sustainable in the future because, I mean, during the quarter, we were locked up at homes, we did a lot of repetition, which is something we cannot afford in the future, unless we are, again, locked up in next year, I hope it will not happen. So of course, I think that we can have -- we can maintain some of the savings, but they -- whole of them, it's impossible because of special characteristics of this year. But some of them will be okay. About the -- it's true that we are having a great success with Mujer, which is a cheap program, but it also has allowed us to broadcast Labo in just one day, not 2 days, which we did last year. And I think it has been a good, very good decision because, I mean, Labo has recovered the audience and ratings. And we thought that broadcasting Labo during 2 consecutive days, we're harming the program a little bit. So we are always trying to balance the grid with programs of -- low-cost programs and programs of a little bit higher cost. And that's what we are -- that we are doing and we will do in the future.

The next question comes from Annick Maas from Exxon BNP Paribas.

My first question is on the radio guidance that you gave. Just if -- why do you give one and so what is it? My second one is on, we know that other media channels are not necessarily performing as well as expected maybe at the start of the summer. Do you see some of the money coming back to TV? I'm referring here specifically to Atres home advertising, have you seen that advertisers that were specifically with these other media channels have now come back to TV or haven't you seen that? And my last one is just on digital in Q3. What explains, I guess, the relative weak performance versus TV advertising in Q3?

Not easy question because I mean, we are in such a strange period that you cannot know what's going on with advertisers and how are they allocating their budgets because, I mean, some of them have disappeared from the market like beverage. And the sectors are performing in a very different way one month and the other. So it's very difficult to understand what's going on in the advertising market and within the advertiser because I mean every sector has a different behavior every month. So it's very difficult to say that. What I do think is that once they realize that they began to -- the consumption began to start, they come to television, and they maintain -- or they allocate the investment in television. Something which is quite interesting is that this -- during this crisis, prices are not that affected as they were during the previous crisis, I think, 2008 to 2013, where prices went down by nearly 30%. And we are in a very different position. So I think that in a way, it looks like the advertisers are having a different perception of what's going on. I think that television has recovered very significantly during the months of July and August, September, not that much, because September is something down by 6% to 8%. And I think in part was because, I mean, there was a lot of, let's say, consumption that was delayed and appear in summer. And now things are going back to, let's say, normal, I think that's one of things that explains this behavior. On the case of digital, well, the point here is that digital has been very much affected also because of the crisis. And it is true that it's evolving a little bit slower than television. We don't really know why. I mean it's very difficult to say why things are happening during this huge crisis. And I think everyone is lost. No one knows what is going on, what's going to happening, what's happening with your sector, with your customers, what's the evolution. So difficult to have a clear answer to your question.

It's okay, Annick. I think you asked something about the radio, the first question about the radio. Can you repeat it, please?

Yes. Do you give guidance for the radio market essentially, for Atresmedia radio?

Well, about radio, I think that it will be a little bit worst than television. I think it will be down a little bit higher by perhaps 2 points with something like 22% down. With the radio, we have a double market, which is the national market of national advertisers and the local market. And what we have seen is that during the first part of the year, local market was stronger than the national market. And now it's shifting. National is doing a little bit better than local. So it's difficult to see which will be the total evolution. But as far as we are now, I will say that the market -- that the radio will perform a little bit worse than television and will be down by 22%, 2 points worse than television. So more or less.

[Operator Instructions] The next question comes from Fernando Abril from Alantra Equities.

Just only one. Could you please give us a little bit of color on the impact you've had from the removal of the payment of an extra fee to the agencies? The impact you've shown on gross to net TV ad revenues this quarter on OpEx, if you had you had any? And then on debt, please?

Yes. Well, we have -- we implemented a policy, as you know, because of the resolution of the CNMC and so we stopped paying rebates to the media buyers since January 2020. So it means that our net revenues are net. We don't have any payment on that kind. So any payment because of the services and all the things that media buyers do to us are on the cost side. So part of the new cost in 2020, we're in the variable cost in 2019. But I mean the -- I cannot tell you exactly which is the amount we are talking about. But I mean, of course, it's a very, very, very small amount of money because, I mean, we are not paying rebates. We are not paying the agency because of the volume. We are just trying to fulfill the suggestions of the CNMC, although we don't agree with them, as you know, because I mean we have appealed to that report, and that's it.

The next question comes from Fernando Cordero from Banco Santander.

Just one question related with the working capital and the net debt evolution. We have seen, let's say, relevant swings in the second quarter and the third quarter regarding the working capital with clearly different seasonal performance than previous year sales, which may be driven by COVID-19 as well. I would like to understand if we can consider the current capital levels are, let's say, normalized in order, I don't know if we should expect further swings in the working capital as a consequence into the net debt from now to the year-end?

Hi, Fernando, the swing in Q3 is very clear. The reason is, on one side, the rappel that we don't have this year, but we have to pay the rappel that we accrued last year, and the impact has been recorded in Q3. This is a very negative impact. And the other one is sequentially receivables. In the first half of the year, the impact of receivables was very positive because of the drop in our revenues. But in Q3 have been just the contrary. We have had higher revenues and a negative impact in working capital. These 2 items together represents more than EUR 40 million of the minus EUR 54 million if that we have this quarter. The strength in receivables will depend on the market. And in terms of rappel, we'll have only a small additional impact in Q4, but very small. And of course, this impact of rappel will affect this year -- only this year, it's a one-off effect, the effect of changing the policy on rappel.

The next question comes from German Garcia from JB Capital.

3 questions, if I may. The first one is regarding market evolution in the fourth quarter. What makes you think that we will remain at the levels of October for whole quarter within the second wave of the pandemic? The second one is regarding the CNMC ruling on the final, the EUR 38 million. What is the treatment you're going to give that? Are you going to provision it to include it in the net debt? And the third one is regarding dividend. What is your expectations for the return of shareholder remuneration?

Yes. About the first question. Well, because I mean that's what we think it could be, whether I'm right or wrong. We can talk about that at the end of 2020. What we see is that in October, there has been no negative impact of the new measures. And well, we do see what's going on in November and December. I don't have the crystal ball. So I mean that's my perception, and that's my point of view, I can be right or wrong. We could see that later. The second question was about?

The CNMC time?

CNMC, well, I mean, nothing has changed. I mean we already waited for this report. The things that we began with the new policy in the very first year. So in the very first beginning of 2020. So we already knew that the court would say that there would not reach suspensions of the measures and that we could not pay, but just give a guarantee what we will do. We will not provision this amount because we are pretty sure that we will gain that the final court or the final end of the process. And of course, once we -- when we give the warranty, it will count as debt. So something clear. You will see that in the very moment that we give the warranty to the CNMC. And that's it. And the third one was about?

Dividends. Yes.

Dividends. Well, we have been a company that we help paid dividends, so along the history. And I mean this has been an exceptional year. Because, I mean, we did thought that the thing could be very much worse that it's been because, I mean, we really thought that the year would be horrible. And I think we are quite more or less having good results, taking into account the situation. And I do think that we will go back to the dividend payment policy in next year. If things evolve as we expected, which means that 2021 should be a positive year and not also as negative as 2020. But I mean the aim of the company is go back to the dividend policy, and that's what we expect to do in 2021.

The next question comes from Antonio Manzano from Santalucia Asset Management.

I've got just one around content production and distribution. It's a division that's been growing handsomely, and 2020 is going to be another good year. The question is around Buendia, and how much growth do you -- if any, do you expect from that joint venture with Telefonica? And also maybe a question on the division as a whole. If you give yourselves a target of how much it should represent of the share of total revenues?

Buendia is doing quite well. I think very, very ahead of expectations in terms of the pipeline that they got. I mean it's a second board we have had with the new company with the joint venture between Telefónica and ourselves. And we do expect good results and being a very important content production company, which is what we -- why we have created this company, not just to produce for Atresmedia and Telefónica to the rest of the market and also to be an important production house of U.S. Hispanic market. So far it's doing well. It's doing quite well. We don't have yet -- I think we will approve the Buendia budgets by the end of November or December. So we can tell you something by the beginning of next year. But so far, I think it will give us very good news. On the second question, you should realize that we have Klaus, the last quarter of last year. And so you have to take that in account. But I mean as you have said in the very beginning of your introduction, I see that all the things related with the content production is growing very nicely. And it proves that what we say that we are just not a television company that we are a content production company and that we exploit our products in all the windows we do have. And we do have not just television, but also digital but also ATRESPLAYER as an AdVOD and SVOD platform that we are trying to get the best results of all our products, exploiting them in the different windows with a market approach that it is very much dependent on the quality and the condition of products. So I think we are a very different company with a lot of degrees of freedom in how to exploit our program and our content.

Ladies and gentlemen, there are no further questions. Dear speakers, back to you for the conclusion.

Okay. Thank you very much for your attendance. Any other questions that you may have, just please contact the Investor Relation department. And I wish you all the best. Thank you very much.