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

Hi, good afternoon, everyone. Welcome to this conference call, in which we are presenting the full year 2020 results. My name is David Gómez, Head of Investor Relations. I'm glad to introduce, as usual, Silvio González and Antonio Manso, to present the highlights of the period and answer your Q&A session. Without further delay, I give the floor to Silvio González. Thank you.

Hello. Good morning to you all. Thank you for attending this meeting. And -- well, I think it's pretty obvious to say that 2020 has been the toughest year for this company. I think that all of us have never seen such a turmoil in just 1 year. And well, this has affected, obviously, the market. The market has declined by 18% compared with 2019, and I mean the impact is due to COVID 19. As you know, we were locked down between mid-March till the end of June -- or June. And so there has been a slight recovery in the third and fourth quarter. That, I mean, as a whole, the year has been pretty, pretty bad, so minus 18%. So we were affected because of that. And the only thing that, well, changed was continuous shift is that in the fourth quarter, the result was a little bit better. So television market, down by 18% for the whole year, but in the fourth quarter, the decrease was only 4%. In the radio, the market also was down year -- compared with year by 23%, while in the fourth quarter, the decrease was only minus 8%. And one who has had a different behavior in performance has been the digital market. The whole year decreased by 5%, at the last quarter was increased by 5%. On the other hand, what was really pretty impressive, was the performance of the TV consumption. I mean the TV consumption for the whole year, as an average, has been 4 hours per person, which is the third record since 2019, and we are at the same levels in 2016, I think so. And the most important thing is that this increase in consumption has affected the whole different profiles in terms of age. So it's not only people above 55, but all the people has increased their TV consumption. In terms of audience, we have had also a quite good year. Atresmedia, as a group, yes, we have delivered a total audience of 26.3%, which means an increase of NPP compared with 2019. And we are the only group that has increased their audience group this year on a year-on-year basis. The 2 main channels, Antena 3 and laSexta, have reached 11.8% and 7%, respectively, in total individual's measure. And total audience for the 4 small channels, complementary channels, has been 7.5%. Talking a little bit about digital, we do think we are quite strong. We have quite a strong position there. Because I mean, we are the leader in terms of digital viewership within all the other national audiovisual players. We occupy the 7th position in ComScore, while our main competitor is at 17th. So big, big gap between both of us. We have had -- we have something like 28 million unique users, and I think, which has been a big success. We expect that success in the performance of the Atresplayer Premium, which is our subscription video-on-demand platform, which, by the end of the year, we have had 452,000 subscribers, which means that we have multiplied by 3.6% -- by 3.6 the results we had in 2019. And remember that, in this case, we only have 1 week as a trial week, so this is a quite strong figure for the future. And going to the financials. Total revenue for the year has been EUR 866 million, which means a decrease of 16.7%. Talking about the Audiovisual business. Total net revenue has been EUR 808 million, which means a decrease of 16.3%. We have maintained our market share, which has been 41%. In 1 more year, we have the highest power ratio of industry at a standard of 1.6x revenue versus audience. And television net Audiovisual revenues has been EUR 660 million, which means a decrease of 15.5%, but we have outperformed the TV market because the TV market decreased by 18.4%. So we have beaten the market slightly. In terms of digital, net advertising revenues have been EUR 51 million, increased 7%, which, compared with the market, has been down by 5.3%. So we also beat the market in this item. And the content production distribution has reached EUR 75 million, which means a decrease of 22.2%. And this is in part due to the creation of Buendia with, as you know, is a joint venture with Telefónica. About the OpEx, for the year, has been EUR 755 million, which means a cost saving of EUR 100 million compared with 2019, which is very -- I mean, which is pretty much what we proposed to you, I think, in the March meeting we had. So we have really fulfilled our commitment of reducing cost by this level. By the end of the year, in December 2020, we launched a voluntary severance scheme for those employees who are 57 and above. And more or less 4% of the workforce, which were eligible, have joined the plan. And that means one-off noncash provision of EUR 36.5 million, which was accrued in the fourth quarter of 2020. And this will mean that savings in personnel will be in the range of EUR 8 million per year from 2020 onwards. EBITDA has been EUR 111 million on pro forma basis. That's it without the accruing of the EUR 74 million of the EUR 36.5 million, which represents the severance scheme. And if you take that in account, the EBITDA for the year will be EUR 74 million. In terms of recurring EBIT, the same, EUR 92 million, which will get down to EUR 40 million if you take the severance scheme and also the write-off of EUR 15 million that we did for the radio goodwill. Net debt has been EUR 117 million compared with EUR 193 million of December '19, which is the lowest level since 2011. So we are in very good financial position. And the operating cash flow has been EUR 105 million, which is very much like the EBITDA level. So it's a conversion of 1 cash of EBITDA. So that's the results for 2020, which I think that due to the circumstances, has been a very good results. We have been able to adapt to the circumstances that's created by COVID-19 in terms of revenues. And I think that we have proved that we are quite capable of adapting costs to the new situation. Also, we are very happy, and we are very proud of the results of our SVOD platform, Atresplayer Premium, which has results far beyond what we expected at the beginning of this project. And so we are quite optimistic about the development of this business. And what about our 2021? Well, the fourth quarter was a quarter that we felt was a shift, and we felt optimistic about the next year, 2021. And so we do think, and we still think, that the market will grow in a range between 7% to 8%. The total advertising market referring to television. Well, it is bad, as you know, after December and due to Christmas, or whatever other reasons, I mean, the disease exploded. And we have had, I mean, not just in Spain, but in all Europe, an enormous increase of people infected. And so all the different administrations began to take measures, which were very much like the measures they took during the months of March, April and June. So there is a certain type of lockdown all around Spain. And so this has affected the market in January. Again, the market in January will be something minus 20%, which is slightly worse than we expected. And so far, as we see February, and we are very, very, very close to the end of the month, February will be very much in line with January. So that's what we do see in this month. And it's a little bit worse than what we expected at the beginning of the year. Talking with the advertisers and with the media buyers and all the people involved in the sector, we still think that the -- we still envisage that, for the whole year, the market will increase by 7% to 8%. So that's what we can -- I can tell you about the market. And so we will be more or less in the same market share, which is something like 41%. So you can have a clear view of which are the revenues we expect for the year. And we do think that this trend will be the same in all the units we manage. So radio, although I think digital will perform better than that. But so far, radio will be very, very much what is in television. In terms of costs, what we do think is that it will be very much linked to revenues. And our aim here is every Euro on top will mean EUR 0.5 on the EBITDA level. This includes also variable costs. So that was our -- that's our objective for the next year, for 2021 -- for this year, which means that every increase on the top on revenues will mean EUR 0.5 on the EBITDA level. So that's more or less what we -- in terms of the dividend policy, this has been a special year because of the COVID. That's why the Board decided not to propose any dividend for this year. But we do expect that if things begin to -- comes back to normality, we will begin with our normal dividend policy, which is at least 80% of the net profit of the company. So this has been an exception. This year has been an exception in terms of dividend. And we will recover our normal policy in the 2021 and next years, because, I mean, that's what our Board is -- wants to do in the future. And well, I think this is all I can tell you about the 2020 and which our -- what we foresee for the future. Now we are open to your questions. Excuse me, and I forgot something very important. We're taking -- I mean, because I think, our view -- at least most of you know Antonio Manso. Antonio Manso has been the Financial Director for the last 28 years of the company, and he has decided to leave us because he thinks that he has some things to do apart from working in Atresmedia, and it is the right moment to do them. Well, we do feel here at Atresmedia that it's a sensible loss, but we also understand that he would like to find another aspects of life that deserves to be lived. So Antonio is leaving us. And well, on our side, we do think that it is an important loss that, well, we would like to send all our love, because he has done a very, very good job in this company. And the one who is substituting Antonio is Fernando Costi. He has been in the company for the last 14, 15 years. He was responsible of the audit department, and he will be the next -- the new Financial Director of the company. Antonio, of course, will be here for a certain time in order to help him to make the substitution smooth. And well, the person who will continue apart from David will be Fernando from now on. It was the second news I wanted to tell you. So -- and now we are open to your questions. Thank you.

Thank you. [ Manaj ], we're entering the Q&A session, please.

[Operator Instructions] The first question comes from Annick Maas from Exxon BNP Paribas.

My first question is on the full year TV advertising market estimates you gave of 7% to 8%. Now in light of January and February being rather weak, maybe can you give us a bit more detail around what drives your confidence on the full year estimate, I mean, maybe some conversations you had with advertisers or agencies? My second question is, if you could maybe comment on what you expect for the content production and digital line in 2021? And then, finally, I would love to have your latest views on the pan-European broadcasting M&A?

About the first question with the TV market, well, one of the sectors that has been affected and that has been decreased, the expected budget, has been automobile, has been beverage, has been financial and mall -- I mean when we talk to them and -- in the case of automobile is very clear. I mean people cannot go freely to the car sellers. And that's why they are pushing their launchings to different months. So I do think that we will recover this investment in the next future because of that. Because I mean people cannot move in Spain where cities like Barcelona, for example, in -- during the weekend, over short-term are closed. So I mean all these type of businesses that we need people to move and to go around, they have -- they are below minimum. So that's why I say that these thing is going to recover in the future, while normality comes up. So that's the reason. The second question was? Yes. About that, I mean, there's a different behavior considering the different items. When talking about the SVOD, I think there will be a really important increase in terms of revenues. Because, I mean, we have now 450,000 subscribers, and you should put them all around the year. So there's been increase nearly by 50% or more than that in terms of the revenues from the SVOD. And in the case of the content distribution, there will be a slight decrease because, I mean, we accrued the total revenues from Buendia until the point that we made a joint venture with Telefónica. From that moment on, we only accrue half of these revenues. And the company will not increase the revenue up to a point that we could maintain the same figure. So on that item, SVOD app and digital and content, a little bit down. I think that, all in all, it will be more or less the same figure. So it will be flat the items for 2021. And then the next one, what's that?

The pan-European. Pan-European.

Pan-European. Well, I have always said that I don't believe very much in pan-European television companies, apart that all the agreements we can have with all of them in terms of technical platforms, which I think it makes a lot of sense. But it is clear that it's now a movement, or it's looked like there is a movement of -- for pan-European TV companies. Well, let's see. I think there's clear synergies in terms of corporate, although I don't know which is the real amount of these synergies. But I still think that, in terms of programs, it's -- there is not a lot of things you can do jointly. But anyway, let's see how things are evolving. What is clear is that we need that the European legislation for the audiovisual sector should change. I mean we cannot still think that there is not a big shift in the sector. That this new platform, they are audiovisual, and they should have the same restrictions and limitations that we do have. And it does not happen. And in the new law that is going to be passed in Spain, this still don't happen. I do think that the real problem here is that there is a huge asymmetry between digital platforms and the traditional television companies. Thank you.

Thank you, Annick.

The next question comes from Richard Eary from UBS.

3 questions, actually. Just you mentioned that, obviously, January was down 20%, February was down 20%. Can you just remind us what March was down last year? And in a typical year, what's the weighting of March in the first quarter? So we can get a sense of potentially how quickly things could come back, if lockdown starts to open up in a sense? That's the first question.

March was a strange month because, as you remember, the first half of the month was a normal month, was a pre-COVID month. And the second part of the month was COVID month. I think the decrease was something about -- decreased by 25%, which means that the second half of the month was something minus 60. But when you joined with the first was minus 25%. And I mean, there's -- we don't have any visibility about what's going -- what will -- what's going on in March this year. Let's see how things evolve. I think that everything will be very much related, which are the new measures that the governments are going to apply within the actual COVID circumstances. And I think that that's the key. If the measures relax a little bit and people begin -- can go to restaurants and they'll go to the car sellers, and can move freely or at least more freely. We expect that March will be a month, but, of course, I think it will be better than last year, but a good month. But let's see. We cannot say anything about that. There's no -- any clue that we can see -- to really foresee or envisage what's going on in March. Thank you.

No, that's helpful. The second question just is on content costs for this year or OpEx. How do we think about it? Obviously, there's a lot of moving parts in terms of how quickly the advertising market comes back, but I'm just wondering whether there's any sort of guidance that you can give us.

On the cost side, well, our commitment is that we will stick very much to the results of the revenues. And so that we will try to get our costs under control. So that just when Euro got on top, half of it goes to the EBITDA. In terms of production costs, we will be very much in line with last year, perhaps a slight increase, but not very much. So that's we -- I think that we could have the costs very much under control for next year.

And maybe just a last question. Just -- I think Annick asked about other revenues. And you said that it should be broadly flat. So it's the same as EUR 75 million in '21. But I would have thought that we would have got a bit of a, obviously, recovery in '21, with more production being delivered to platforms. I would have thought cinema may come back as well. And then I would have thought that you would have obviously got some tailwind effect of the growth in Mitele Plus subscribers. So I was a bit surprised by your flat commentary. So I'm just trying to understand that a little bit more.

I think -- we do think it will be a little flat because, I mean I'm talking about the same item as you, cinema. We don't expect, though, that the exhibition will recover, that the people that can go to see the films every night. Now it's less than 30%, and in certain towns, all the cinemas are closed. We don't expect this to really come back to the good old times in the next year or at least, it will be at the end of the year. So that's why we think that cinema -- we don't expect cinema to change a lot about that. All the things related with events. As you know, we have popular races and all these type of events that meant that a lot of people join and run together or go to the music halls or that, we don't think we will recover them, at least by the end of the year. So that we are trying to be very conservative and that's why we think that there will not be significant changes on that. And that's why we think it will be flat because, I mean SVOD will grow a lot. Production will diminish, not because the production is decreasing, because the pipeline of Buendía very good, but because we are not accruing the total amount of the revenues of Buendía but just half of it. Thank you.

And, Richard, do you have a follow-up?

No. No, that was fine. Maybe just out of the EUR 75 million, how much was SVOD in '20?

It's something like EUR 12 million, I think, is SVOD in '20 is EUR 12 million.

We will give you that figure more exactly.