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

Good morning, everyone. This is Pilar Gil speaking, Head of IR. Welcome to PRISA's First Half 2021 Results Conference Call. To explain in detail the results release, today's presentation will be led by Joseph Oughourlian, our Chairman, and we will also have with us Carlos Nunez, Executive Chairman of PRISA Media; Francisco Cuadrado, Executive Chairman of Santillana; Julio Alonso, Chief Operating Officer of Santillana; and David Mesonero, Group CFO. Following our presentation, we will open the floor for Q&A, and the people on webcast will also have the chance to put their questions. With that, I will now hand it over to our Chairman, Joseph.

Thanks, Pilar. Thanks, everyone, for being on the call this morning. Before going into details with the results, I want to spend a few words to explain the recent organizational changes. The last few months have been rather intense and hard in many ways. But we've taken very significant steps going forward in the way we've changed this organization. Retail changes in corporate governance, our shareholding structure has been changed. And now we have, I think, a new management team with a highly specialized technical profile for a new structure that will be more agile and innovative. In this new structure, the group goes from having one single CEO at the holding level with 3 CEOs in the business units. To having 2 -- only 2 executive directors. So that's going from 4 CEOs to 2. And the 2 executive directors will have differentiated responsibilities, and we also have a new CFO. That takes away a layer of management that cuts costs in the organization and also makes it a lot more efficient. It also allows us to accelerate our projects splitting up the company. Let me say a few words about the people that will be now leading this organization. Education will be led by Francisco Cuadrado, [indiscernible]. In recent years, [indiscernible] has been responsible for the expansion and consolidation of our Latin American business and is being the architect of the technological platform that has boosted our subscription model, which now serves almost 2 million students in Latin America. We understand that given his characteristics and professional experience, what rate is the ideal replacement to maximize the value of Santillana. I also take this opportunity to thank Manuel Mirat for his work and dedication both at Santillana and at PRISA in the last few months. Media will be led by Carlos Nunez. In the last 6 years, Carlos has managed transformed the business model of one of Spain's leading publishing group, investing in the development of new businesses based on technology with integrated media and content management platform. At the same time, he's participated in the local radio business and led the change in the organizational goes model of the company. creating much more agile structures, developing internal talent. Carlos has been able to reach agreements with other publishing groups becoming 1 of the leaders in the digital and technological transformation of the sector. in the Spanish-speaking market. And of course, let me say a few words about David Mesonero, who is now joining us as new CFO of PRISA. He will be overseeing all financial departments with reinforced functions to ensure cost control, improved cash flow generation profile. David has a successful track record the business world, particularly being specialist in capital markets, M&A and financing restructurings and has spent most of the last 10 years of this professional cover prestigious firms such as Gamesa and Iberdrola. On to business. It's been a very difficult start of the year with both our engines of our businesses continued to be paralyzed by the effects of the pandemic. The performance of the second quarter anticipates some recovery. We hope that, that recovery can be extended to the whole year. The media business had a positive momentum in Q2, especially due to the advertising recovery and the good performance of the digital area. We expect the gradual recovery of reopening of schools in Latin America during the rest of the year, and that will be key in terms of consolidating the recovery of the Education business. All this without ignoring the complex economic environment and the doubts that persists about the impact of the pandemic. We don't know whether that be a fifth wave, whether that will impact our businesses, both in Spain and Latin America, but that should make us continue adopting the necessary measures and be very cautious about the next few months. The company keeps focusing on efficiencies, cutting costs. We have also a very strong commitment to improve the balance sheet. As you know, I've said this a few times this year, debt levels for this company remain too high and the cash flow profile needs to be improved. This is clearly my priority as new Chairman of the company. With this, I'll leave it to Carlos, who will give you some color on PRISA Media operating evolution.

Thank you, Joseph. Hello, everyone. This is Carlos Nunez speaking. Before giving you some headlines on how PRISA Media will be going forward, let's first move to review the performance of the PRISA Media division in the first half of 2021, focusing on the digital side of the business. Regarding traffic, I would like to highlight that our stable number of unique browsers, 239 million, both for press and radio shows a good behavior, considering that our digital traffic reached maximum levels during 2020 lockdown period and particularly El País traffic decreased by 21% due to our paywall model as we expected when we launched that model.Second, to highlight this the evolution of digital-only subscribers at El País, which increased almost by 2x to reach 109,000 and again, on the digital and only for El País. If we add up combined paper and digital subscribers, we have more than 152,000. El País is as of today, the Spanish leader in newspaper digital-only subscribers. As you know, this is a key revenue driver for us in the coming future. Third, regarding audio consumption, we show very good growth rates, both for total listening hours with more than 67 million monthly average and for audio downloads with more than 31 million downloads. And last but not least, we have more than 6 million registered users in our combined News and Radio businesses. This provides us a huge leverage to our subscriber model and at the same time, allow us to improve our advertising proposals in the coming [indiscernible] scenario. All in all, excellent behavior during the period regarding our Digital outlooks. On the financial side, I would like to highlight some key messages. First, 17% revenue growth versus 2020, digital with 35% growth and also in nondigital, retail advertising, whereas paper advertising and situation with a 13% decrease. This means an increase of 300 basis points of our digital revenue mix consider the high weight of radio advertising in our business mix. Radio is still a low digitalized business, where we have only 5% of our revenue coming for pure digital channels. On the advertising side, we have had a good performance, beating the market in Spain. Considering I2P market data, we have grown 21% in radio versus 18% market and 16% in press, both online and offline versus 7.5% market. This gives us a 26% of digital advertising in our advertising mix for the whole Media division. But considering only press, we have more than 70% of our advertising mix in press coming from digital. Leveraging on our recent team reinforcement with top management for the commercial and the digital areas, we expect to improve these figures in the near future. On the cost front, we have consolidated during the period, the strong effort made year last, where we reduced our combined cost base, press and radio by 15%. We keep working on efficiency as an operator line function for us. With this and excluding one-off costs associated through restructuring, we have significantly turned around our EBITDA during the period with more than EUR 25 million increase and with the corresponding improvement of our cash flow generation profile. Moving to the next page, let me give you some headlines on how I envision PRISA Media going forward. Here, I would like to highlight 3 key areas. First, my role implies full responsibility on PRISA Media's assets, that is Radio assets, Cadena SER, Top Radio Musical, Radio Caracol, Ibero Americana in Chile; Radio Caracol in Colombia; Ibero Americana in Chile; and Radiópolis in Mexico; and Press El País [indiscernible] and [indiscernible]. And I am currently working to implement a new organizational model to manage our whole asset portfolio in a coordinated and optimized way. This will definitely drive to synergies that is more revenues, cost efficiencies and gross leverage of our media assets. Indeed, you are already seeing some organizational movements in business. Second, PRISA Media has 3 key unique advantages versus other media groups that give us a competitive edge and clear upside to build a global digital content leader in the Spanish premarket. First, in the first place, we have a strong know-how and skills in press and in inner view. As you know, Audio is the new driver for digitalization in the content industry, and we can action simultaneously both levers, press and audio. Second, our brands, El País, Caracol, Cadena SER are leaders in unreplicable in our core markets. And last, PRISA Media, the only media group with footprint in different key Spanish-speaking markets that give us potential and upside to grow through a combined present radio approach. Bear in mind that typically other policing groups are contained in just 1 country. Third, our digital journey will be driven by working simultaneously on 3 lines of actions that will activate above-mentioned unique advantages. We will build platforms around our assets. This will provide us a scale, which is critical in the digital landscape and at the same time, will introduce significant efficiencies to jointly operate our asset portfolio. Obviously, we will continue to focus on content creation with a transmedia approach. That is the name of the game for us. We want to become the best content provider in digital Spanish-speaking markets. We will target and work with global audiences, both combining media, audio and press in the digital environment and targeting multiple countries, Spain, LatAm and even U.S. Spanish-speaking market. With this, and as you see, opportunities for our Media division are massive. And despite new business as usual initiatives already launched and ongoing, we are working in detailing a new plan, which we will be pleased to share with you when ready, likely 4Q 2021. Now I will hand over to Julio Alonso, who will review Santillana results. Thanks very much.

And any focus on the strategic vision of becoming a company of education systems in the private market, where Santillana continues to grow it's students. It could be of recruitment done as by the physical closure of schools during the last years in our market. We're approaching 1.9 million subscribers now that and the progress of the commercial campaigns in the Northern Hemisphere Mexico and/or mainly supporting by news of reopening of schools with a new academic year make us feel optimistic the objective of 2 million students at beyond the end of 2021. The second key figure or doubt, not a very significant factor of our business, already saw increase, which we are in line to consolidate in the second half of the year when the start of the campaign is focused on the most significant countries of the South hemisphere beside the offsetting of pricing. In the next slide, subscription students already represents 1/3 of private market revenues. And despite the negative effect of the exchange rate they grow well. While it's true that the pandemic has resulted in a very significant reduction in personal rates in the international market despite cost estimate had an impact to [indiscernible]'2020 by Coronavirus pandemic. Public sales are behaving positively. And in the second semester, we have 3 NLV placement and novelty orders in Brazil, which will critically increase the company's income and results. Finally, it should be noted that Santillana profits will be split in its private and public businesses, which are mor split in terms of product and commentate first every day. This project is expected to be carried out at the end of this year. Now I will hand it over to David.

Thank you, Julio. This is David Mesonero, new CFO of PRISA Group. Let me explain PRISA Group financial overview on slide 12. During the period, operation, the company cashflow before M&A of the financing costs remain in line with previous year despite the operational decline and a higher level of redundancies, which amounted to [ EUR 15 million ] with a cash impact of EUR 11 million. liquidity of the company remains solid with total cash of EUR 201 million and additional liquidity lines undrawn amounting to EUR 122 million. Net debt at the end of the period stood at EUR 743 million versus EUR 679 million as of December 2020, explained by the cash flow consumption in the period and the one-off costs associated to M&A and refinancing. Simplicity, efficiency and transparency will be the 3 basic pillars at beginning of my work as CFO. As Joseph said before, that level remains high and my priority together with him will be the optimization of the balance sheet with a special focus on the improvement of the cash flow generation profile of the company. We are currently in the process of performing through our review of the current capital structure of the company, which will allow us to face the future regards. Let's review of you with more detail on slide 13, the key H1 financial highlights of PRISA Group. As Carlos and Julio explained before, H1 numbers dropped Q1 performance, which was severely affected by pandemic with a second quarter which was a strong fact to advertising recovery and digital growth, as Carlos explained. The commitment cost reduction plan of over EUR 30 million for the full year is being accomplished across businesses with more than 2/3 of the total plan already executed in the first -- in the H1 and with measures already taken to ensure that EUR 30 million plan is exceeded by year-end. During the period, ForEx had a negative impact of EUR 23 million in revenues and EUR 4.6 million in EBITDA. As a result of the valuations mainly in Brazil and Argentina, affecting mainly in the education business. We will also start to reviewing ForEx evolution to define the aggregate coverage policy for the group. There is to highlight that adjusted EBITDA, which excludes redundancies in local currency remained in line with previous year. And EBITDA excluding redundancy minus CapEx is positive. This is a key metric to understand the underlying operating performance of the business. On the Slide 14, we have the evolution from EBIT to net profit, where the comparison with previous year is affected by 2020 impairments carried out. On a like-for-like basis, the relevant line to highlight in the period is the reduction of EUR 8 million of debt interest as a result of the reduction of bank debt, which in June 2020 stood at EUR 1.1 billion. This reduction on debt interest offset partially the operational decline. Let's move to slide 15 to review in detail the cash flow generation and the debt evolution. Cash flow before one-offs, M&A and refinancing costs in the period was in line with previous year despite the operational decline seen on the business, minus EUR 41 million versus minus EUR 39 million. The breaking decline and the higher severance payments were mainly offset by lower CapEx, positive result of a VAT Act included in other lines and lower interest as a reduction of the debt. On the bottom hand side of the slide, we see the net debt evolution. Net financial debt stood at EUR 743 million compared to EUR 679 million as of December 2020. The evolution includes minus EUR 41 million cash flow for operations explained before, minus EUR 14 million, which includes remaining costs associated to 2020 refinancing in Santillana Spain sale and minus EUR 8 million, which includes mainly accrued interest loan [ paid on peak ]. It is important to reinforce that but cash position at the end of the period stands at EUR 201 million with additional liquidity lines undrawn amounting EUR 122 million. I would like to stress that my priority will focus on cash flow generation, monitoring working capital and CapEx through weekly calls with the business to ensure and maximize the cash flow generation profile of the company. I would like to meet with you in person within the next few months. Let's now move to the closing remarks. Please, Joseph continue.

Thank you, David. To conclude -- Let me share with you the main key takeaways that we have as of today, the company keeps on track to meet 2021 outlook provided to the market. Our media assets are outperforming the advertising market, the digital KPIs continue to improve, measures have already been taken to ensure the exceeding of the cost reduction plan and the cash consumption, excluding redundancies, improved despite the operating decline. The second half, we expect a continued recovery of the advertising market and the reopening of schools in Latin America should help to improve Santillana performance. All of this without ignoring the complex economic environment that we continue to face and that we continue to monitor very closely. As a result, additional efficiency measures are under review and will probably be implemented in the second half of this year. Let's now move to the Q&A session. Operator?

[Operator Instruction] Our first question comes from the line of Manuel Lorente. Would you like to take our second question, sir?

Sure.

Our next question comes from the line of Fernando Cordero.

Can you hear me?

Yes, yes.