Promotora de Informaciones, S.A. (PRS) Earnings Call Transcript & Summary

Good afternoon. This is Pilar Gil speaking, Head of IR. Welcome to PRISA's Full Year 2020 Results Conference Call. Today's presentation will be led by Manuel Mirat, our CEO; and Guillermo de Juanes, our CFO, who will be spending in detail the results release. [Operator Instructions] With that, I will now hand it over to our CEO, Manuel.

Hello to everybody. Thanks all of you for attending this call. I am pleased to review with you the full year 2020 results. I will start first by explaining the key highlights of the period. Then we will review group and business unit main figures. And finally, we will end up giving some color on how we see the outlook for this year, 2021. On Slide 4, you have a summary of what has been the key corporate highlights in the year. As all of you know, the last year was extremely complicated and unprecedent. The pandemic has the vast economic and human impact around the world. And our business has also suffered a relevant impact. I believe that under these conditions, PRISA's response has been understanding. First, we have managed to improve our flexibility and financial strength. We executed disposal of Santillana Spain and also Media Capital and signed a new refinancing agreement with unanimity of lender, extending debt maturities till 2025 and improving liquidity significantly. Second, PRISA is a business group who is focused in 2 sectors as essential as education and media that's giving the highest priority to the continuity of our activities, taking the necessary measure to protect health of our employees, supplier and customers, and we have fulfilled our social committed to society, placing a special emphasis on our role, offering at all time both high quality of education service and providing accurate information through all our newspaper and radio station. And third, Vivendi has become the company's second largest shareholder after acquiring 9.9% of the capital. Then 3 of our investor with the speeding in the sector of Vivendi is really welcomed by the company. Vivendi's strategy has been [indiscernible] our synergies with the road map draw up by PRISA, involving the development of education, nutrition service as well as news and entertainment content and growth committed to the digitalization of our product and brands. Therefore, 2020 events represent a major step for PRISA, the strategy with financial strength, social commitment, digital development and corporate government improvement. If we go to the Slide 5, we have the key operating highlights of the period. First, PRISA full year 2020 set of results has been impacted by pandemic with education that had been conditioned by the school physically closed in most countries where we operate, while the media business have been impacted by global advertising market declines. Second, during the period, digital business has accelerated its growth with total digital revenues increasing its contribution by 31%, representing 30% of total group revenues. As a result of the increased focus on digital growth, Santillana increased the number of its student of its subscription model by 20% to surpass 1.7 million. EL PAÍS reached 130,000 subscribers, of which 85,000 are digital only, and radio increased the number of our office sealing consume by 11% and [ podcast ] downloads by 63%. And third, the company achieved EUR 49 million savings exceeding the EUR 40 million contingency plan committed to mitigate the pandemic impacts. By business unit. The education business so resilient, maintaining margin at 21% level. I think it's relevant to highlight in the period the subscription model performance. We have proved to be resilient with 20% growth in the period of number of students and with subscription model becoming already the largest source of revenues for education. The good behavior of the subscription model partially offset the fall in LatAm didactic business affected by the difficulties of the environment and the lack of novelties in the public sales. The media business is particularly affected by the COVID-19 crisis, showing falling revenues over the period of 32% in radio and 22% in news. The clients have been moderating over the quarter, and both companies have implemented cost control throughout the period. Review grows audience figures and gain share in most of the countries where we are present, while making progress in the strategy of creating new digital audio content, multichannel distribution and growth innovation that is reflected in the growth of streaming hours and [ podcast ] downloads, as I said before. News boost the transformation of the digital model with the launch of the paywall in early May. As I mentioned before, we have reached 130,000 subscribers, of which 85,000 are pure digital. With the paywall model proven to be a model that economically works and with some potential for the future coming. 42% of the new revenue are already digital, while 67% of the total advertising is already also digital. We move to Slide 6. On the cost control side, the company put in place a EUR 40 million contingency plans to reduce the negative impact of COVID-19, which includes cost reduction in all items. As of December, the plan committed was [ a sift ], achieving savings of EUR 49 million. FX has had negative effects on revenues of EUR 72 million and an EBITDA of EUR 30 million, that it was basically due to the valuation in Mexico, Argentina and Brazil. The net result was EUR 90 million positive and was conditioned by the Santillana Spain capital gain of EUR 377 million. And finally, the net debt at the end of the period stood at EUR 679 million compared with EUR 1.61 million by December 2019. At December last year, the company cash position stands at EUR 222 million, with additional liquidity lines we drop amounting EUR 143 million. On the Slide 7, you have the estimated negative impact for COVID-19. We have an estimated negative impact in revenues of EUR 223 million and on EBITDA, EUR 104 million, net of the continuation plan put in place. The contingency plan plays across all business has helped to mitigate the negative impact from COVID-19. I will hand it over now to Guillermo, who will explain in detail the consolidated numbers and the evolution by business unit.

Thank you, Manuel. If we move to Slide #9, we have the main operating performance figures for the group in the period. Total revenues amounted to EUR 701 million, and EBITDA reached EUR 64 million, which means a decrease of 66% in euros or 59% in local currency. On the bottom left-hand side of the slide, we can see the negative evolution of the EBITDA, both in Spain and LatAm, mainly impacted by the worldwide lockdowns and the advertising declines in the media business. On the right side of the slide, you can see the negative FX impact, both in revenues and EBITDA, which is largely explained by the weakness in some currencies, mainly in Brazil, Argentina and Mexico. On Slide 10, we have the evolution from EBIT to net profit. Net profit for the year reached EUR 89.7 million. 2020 results were positively impacted by the disposal of Santillana Spain, resulting in a capital gain of EUR 377 million that set up several negative noncash accounting impact, mainly as a result of the impact of the new refinancing amounting to EUR 37 million and tax assets -- tax and asset impairments carried out mainly as a result of COVID-19. Impairments include EUR 77 million for the sale of Media Capital, EUR 62.4 million for the outstanding tax credits in Spain and EUR 26 million corresponding to radio assets in Mexico achievement. Let's move to explain cash flow generation and net debt evolution in the period on Slide #11. Cash flow before operation in the period reached minus 6 -- EUR 4.6 million compared with a negative EUR 20.2 million in the same period last year. The lower operating performance at EBITDA level was partially compensated by a significant effort at working capital management, contention at CapEx level and lower taxes paid on the back of lower operating profit for the year. On the bottom hand side of the slide, we see the net debt evolution for the year. Net financial debt stood at EUR 679 million after net proceeds from the disposal of Santillana Spain and Media Capital reduced total net debt by more than 13%. Net debt-to-EBITDA ratio stands at 10.9x due to the impact of COVID-19 on the group's EBITDA. It is important to highlight that cash position at the end of the period stands at EUR 222 million, with additional liquidity lines undrawn amounted to EUR 143 million, EUR 109 million at PRISA level and EUR 34 million at the business unit level. Let's now move to quickly review business unit performance. If we move to Slide #13, we can see the main operating figures for Santillana. Total revenue in the period reached EUR 366 million with an EBITDA of EUR 77 million. The business maintained margins above 20% despite a difficult environment with most of schools physically closed impacting some countries of the southern and northern areas and the weakness of the LatAm currencies. On Slide 14, we have the evolution of Santillana Education revenue by segment, private LatAm sales and public sales. These 2 segments follow different dynamic sense, following different evolution helps to better understand the overall performance of Santillana. Private LatAm education sales reached EUR 255 million, representing 70% of total revenues being 27.4% lower in euros and 16% lower in local currency compared to 2019. The evolution was driven by strong performance in subscription models with the deductive business being affected by the difficulties of the environment with most of the schools physically closed during 2020. As you know, Santillana is fully focused on accelerating its digital transformation and migrating students from the lactic into subscription models. Subscription models reached EUR 136.5 million, showing growth of 12.2% in local currency or minus 4% in euros. We commit the largest source of revenues for education. Public allocation sales reached EUR 100 million, representing 28% of total sales and declined by 23% in euros or 4.5% in local currency, mainly explained by the lack of novelties in Brazil in 2020. Business performance was affected overall by the difficulties related to COVID-19, with schools physically closed in most countries. Subscription models shows resilience, continuing to grow and partially offset the deductive business performance, affected by the difficult environment and the lack of novelties in public sales in Brazil. On Slide 15, let's review the key benefits of the subscription models and its historical evolution. The key benefits of this new business model, as you know, are the following: more revenue visibility, we signed contracts for an average period between 3 and 4 years; average revenue per site higher than the average 1 per student of the traditional model; higher profitability with a gross margin above 80% superior to the traditional education one. Average revenue and rates of such system is close to 90% and a fully invested scalable platform with high growth potential. For 2020, the plans for revenue and number of students will reach -- growing number of students by 20% to surpass 1,727,000 students, reaching revenues of [ BRL 736 million ]. In the current environment of economic crisis, we expect the transfer in the number of students from private schools to public schools to continue in 2021. Despite this, by 2021, the number of students and subscription model is expected to grow by more than 10%, and we expect to reach close to 2 million students by the end of the year. On Slide 16, we have further details on the number of students by type of system and by country. As you can see, all main countries show a significant growth compared to 2019, with Brazil growing by 39%, Colombia by 23%, Mexico by 4% and the rest of the countries by 9%. It is worth to highlight that Brazil -- that in Brazil, Santillana has grown the most in students in 2020 compared to the main competitors, going from 427 students in 2019 to almost 600,000 by 2020, plus 39%. In this environment of current crisis, Santillana has guaranteed school activity in total normality through its platforms and resources while the number of [indiscernible] content have increased exponentially. COVID-19 is representing to be a fundamental change in education, accelerating the shift towards digital on both teachers and students. Let's move on to Slide 17 to explain the radio evolution. Radio results in 2020 have been affected by an impact of COVID-19 as there has been significant drops in the advertising markets, being the advertising revenues is main source of revenue. Revenues in the period reached EUR 156 million, a fall of 32% in euros, 29% in local currency, with faults reduced throughout the quarters in the beginnings of the pandemic. Radio continues to advance in its strategy of creating new digital audio content, multichannel distribution and product innovation, which is having its reflection in the growth of the consumption of streaming hours and podcast downloads reaching in December EUR 59.4 million and EUR 24 million, respectively. EBITDA reached EUR 4.9 million versus EUR 63.4 million in the same period of the previous year, a fall of EUR 58 million. In the period, Spain represented 73% of total revenues. On Slide 18, we have the evolution between Spain and LatAm radio. In Spain, revenues dropped by 27% from EUR 184 million to EUR 135 million, while EBITDA was reduced from EUR 47 million to EUR 15 million compared to the same period of 2019. As mentioned before, these impacts are explained by the declines in advertising due to COVID-19. In LatAm, declines were larger than in Spain, with revenue drop of 43% in euros or 34% in local currency from EUR 89 million to EUR 51 million. As a result of this, EBITDA was negative, both in euros and local currency. Despite revenue declines, Cadena SER maintains absolute leadership with a market share of 36% of Spanish generalist radio growing by 240,000 listeners and gaining 2 percentage points in audience shares. LOS40 ranked second position in Spain after SER and holds first place in the music radio market with an audience share that grew by 1.3 points, reaching 23%. In Chile and Colombia, the group's radios maintained leadership with respective audience share of 45% and 26%, respectively. Let's review the news business on Slide 19. On the operating side of the news business, we can see that the revenue evolution has been affected by COVID-19 with a decline in advertising revenues of EUR 25 million and in circulation revenues of EUR 31 million. We can also see the positive contribution from -- coming from the payroll business. The period ended with revenues of EUR 165 million, which means a decrease of 22% compared to 2019. Despite the decline of revenues, we could highlight that digital advertising continues growing its contribution compared to the same period in the previous year, and digital advertising already represents 67% of total advertising. EBITDA in the period was negative EUR 10 million compared to a positive number of EUR 12.1 million in the same period the previous year. On Slide 20, we can see the main key highlights of the paywall model. We would like to highlight the launch of the digital subscription model on May 1, 2020, of EL PAÍS. EL PAÍS has opted for the launch of a metered subscription model, more flexible than had payable model, where unlike this, the site is left open for all users until they have read 3 articles per month. The launch price is EUR 10 per month with a promotion of the first month of EUR 1 for the monthly format and with a 20% discount for annual subscriptions. EL PAÍS has reached 130,000 subscribers, out of which almost 85,000 are digital only subscribers. Out of the 85,000 digital only subscribers, 75% of Spanish or Spanish based, while 25% are international, with annual subscriptions representing 30% of total subscriptions. Since the reading under registration and initiative, the number of registered readers has experienced strong growth, reaching 3.3 million readers in December 2020, an increase of 63.7% compared to 2019. The evolution of the main KPIs of the subscription model has been positive with 18% of total page views of EL PAÍS being done in an identified way, 65% more than in 2019 and having during the period, a total of 853,000 unique users navigating to EL PAÍS. We believe the paywall is a step forward in the new press business model of EL PAÍS, which will help to consolidate and enlarge the digital business developed over the past years. The paywall is demonstrating to be a business model which works with strong potential for further development. Let's move on to Slide 22 to review PRISA commitment with society and the improvement on ESG criteria. Commitments to society is of the essence of PRISA. Its mission is to contribute to the development of the progress of people and society by offering quality education and [ a create ] independent and responsible information. In a year marked by the pandemic, our education business focused on learning, guarantee the normality of school activity by opening technology, its technological platforms towards students and features. The business keeps focus on integrating the Sustainable Development Goals into the development of the content while promoting technology to support the development of social and well-being. It participates in foundations that promote professional and personal development and fosters programs aimed at promoting creativity, innovation and technological and scientific development. Regarding our media business, they have fulfilled their social function during the pandemic. They have provided uninterrupted, in-depth, accurate and rigorous information towards sets and placing special emphasis on the role as an essential service. EL PAÍS has maintained free access to information on the health crisis throughout the pandemic and radio has prioritized the recent formation. They keep on fighting against fake news, support independence and rigorous journalism with [ ordained asset ] awards and collaborate in different foundations in solidarity actions and environment issues. The company is fully committed with ESG criteria, and we keep focusing on improving across all parameters. Governance criteria improved with yesterday's new board member appointment. I will now hand it over to Manuel, who will cover the PRISA outlook for 2021.

Thank you, Guillermo. If we move to Slide 24, we can see PRISA outlook metric for 2021. This year is expected to be a year of transition due to the global uncertainty resulting for the future consequence of the COVID-19. The macroeconomic outlook point to global growth in this year. Also pre-pandemic levels are not expected to recover until 2023 -- 2022, 2023. Let me say with you how we see the year with current market condition. First, operating growth in all business unit is expected, but it's important to highlight that throughout the year will be very difficult due to the worst comparison with 2020 in the first month. Second, a significant improvement in the group digital KPIs is expected with understanding growth in subscription model in both education and EL PAÍS. And third, an initial cost adoption plan has put in place amounting EUR 30 million. And on the top of this plan, the company keeps exploring additional efficiency measures. And lastly, a significant improvement in cash consumption is expected compared to 2020, net of the restructuring costs. If we move to Slide 25, we have the main outlook for the business unit. In the case of the education, I'm talking about the private market, we expect subscription model to reach 2 million subscriptions compared with 1.7 million of last year on the traditional business through recovery, but subject to the uncertainty about the evolution of the pandemic and the reopening of the schools. On the public market, we expect growth versus 2020 due to novelties in the senior media in Brazil. And in parallel, we keep working on the carve-out of the public and the private business in the education. In the radio business, we expect to maintain the leadership position in Spain, Chile and Colombia, with advertising performing in line with market, and we will focus -- will continue to creation of the new contents growth on digital product and cost control. For news, we expect a focus on subscription model growth by increasing the number of subscribers to over 150,000 by the end of this year, and we will also expect other pricing to perform in line with market. Now Guillermo will explain in detail how the business should evolve quarterly during 2021.

On Slide 26, you can see how we anticipate the evolution of 2021 compared to 2020 on a quarterly basis. For 2021, we expect a difficult start of the year, especially during the first months of the year, but we expect that recovery throughout the year to achieve operating growth in all business units. On the slide, you can see the quarterly comparison between 2020 and 2021 for both media and education business. In education, on the top of the slide, if we look at 2020, Q1 had leader pandemic impact, which is when the sales of the southern campaigns take place. In addition, part of 2019 Brazilian public sales were registered in Q1 2020 and amounted to EUR 31 million. Impact from COVID-19 increased from Q2 onwards with school and distribution channels closures affecting especially in northern campaigns. Additionally, currency devaluations increased over the quarters, especially in the Brazilian real. Looking at 2021, in Q1, the south campaigns will be affected by the pandemic in an environment where schools are still close physically in most countries and all Brazilian public sales from 2020 were registered in Q4 2020. The reopening of schools is expected to normalize at some point over the course of the year with novelties in public sales expected in Brazil for senior media in Q4, which we expect will have a positive impact when comparing 2021 full results with 2020. In media, in 2020, the biggest impact of -- on advertising market declines took place in Q2, where our media recorded a 51% drop in advertising, with declines moderating over the following quarters. For 2021, we expect the market to grow versus 2020, but the first quarter will be impacted by declines in the advertising markets in most of the Q1 of last year was not affected by the impact of COVID-19. From Q2 onwards, we expect a better performance in 2020 in each of the remaining quarters of 2021. Manuel will now cover the closing remarks of the results presentation.

Thank you, Guillermo. As closing remark, very briefly, I would like to say the following. In 2020, PRISA has improved its financial stand. We have enlarged its -- our digital business. We have increased and improved our social committee and corporate governance. For this year, 2021, operating growth is expected in all business with digital book, strong cost control and cash consumption improvement despite the difficult start of the year due to the worst comparison in first month. Please now move to the Q&A session.

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

First in is related with the outlook 2021 and particularly on the growth in learning systems. In that sense, I would like to understand which are the dynamics that you are seeing in the different markets where you are present. And at which extent the rest of the Latin American markets are performing in a different way to Brazil in 2020. We have seen strong growth in Brazil, despite being the more mature market investment systems. And I would like to understand at which extent this kind of growth should be also maintain in 2021. And also looking into the quarterly performance in 2021, very useful Slide 26. And I'm a little bit surprised for, I would like to obtain more color on your outlook for the first quarter in advertising market in Spain, after the 21% decline in year 2020 in the first quarter, and you are expecting first quarter this year also to fall. In that sense, I would like to understand which is the current trading of your other placing business, both in PRISA and new radio in Spain.