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

Good morning. This is Pilar Gil speaking, head of IR. Welcome to PRISA's Q3 '21 results conference call. To explain in detail the results release, today's presentation will be led by Joseph Oughourlian, our Chairman; we will also have with us David Mesonero, Group's CFO; Carlos Nunez, Executive Chairman of PRISA Media; Francisco Cuadrado, Executive Chairman of Education; and Julio Alonso, Chief Operating Officer of Education. Following our presentation, we will open the floor for Q&A and the people on the webcast will also have the chance to put their questions. With that, I will now hand it over to our Chairman, Joseph.

Thanks, Pilar. First of all, I'd like to thank you all for your attendance today. Let's go in the results. And I would like to invite you to go to Slide 4, where we're seeing strong operational improvements in all business lines and education, the roping of schools in Latin America has allowed us to turn into operating growth supported by the good evolution of the North campaign and the outstanding results achieved in the product sales, the return to normality LatAm schools allowed us to look to the future with more optimism. [Technical Difficulty]

There were some kind of internet problems. We will move on.

All right. Okay. Thanks, Pilar. Sorry about that. I was on Slide 4 and highlighting the boost of digital. Highlighting 2 million students, highlighting the fact that increased in Media, EL PAÍS has reached 162,000 subscribers, of which more than 121,000 are digital-only, an increase of 77% compared to September 2020. And in Radio, the increase in hours consuming streaming and download of podcast continues to fairly rise, growing by 20% and 38% respectively, compared to last year. Cost control is also very important in the company. We keep focusing on unlocking business efficiencies across all business areas to improve the cash flow generation profile. And as of September, I'm happy to report that of the EUR 30 million fixed cost reduction plan announced at the beginning of the year. That plan has already been achieved and we keep on implementing additional restructuring measures. As you all know, there have been significant management changes throughout the company in the last few months. And I'm proud to say that today, there is a new culture that is already evident in the company with renewed teams pushing towards a new stage, which is already translating into positive results. Now [ let's move on to ] Slide 5 where I'd like to go through some of the most relevant business unit highlights for Q3. The first one is that Q3 was particularly active whereby with the appointment of the new director [indiscernible] and the redesign of the website only 1.5 years after launching the digital subscription model. Our redesigner enhances the value of newspaper, putting the needs of readers at the center and adapting to changes through new tools and greater knowledge of the audience. Also, Santillana in Q3 has achieved an outstanding market share of 32% in Brazil's 2021 public sales. And last but not least, on the corporate side, we've launched a sustainability committee, which will focus on improving the group's sustainability, will enhance the ESG reporting and will define future goals. I'll now hand it over to David, who will give you some color on the financial highlights.

Thank you very much, Joseph. This is David Mesonero speaking, CFO. Let's move to main group's financial highlights on Slide #7. During the period, the operating EBITDA, excluding severance payments reached EUR 42 million, 50% better than the same period last year. In the stand-alone quarter, the improvement was of 424% supported by the operating improvement of both Education and Media business as Joseph explained before. The new financial culture focused on the active management of working capital and focus on improving company's cash flow generation profile has led the positive cash flow generation of EUR 22 million in the third quarter of the year mainly being the euro affected by Q3 2020. The improvement in the cash generation comes supported by the operation improvement of all business lines, the working capital management and all these, despite higher level of redundancies that, as you know, with a lot of efficiencies in the future. It is worth noting that excluding severance payments, the group achieved a positive cash flow generation in the first 9 months results. That's EUR 1 million compared to minus EUR 21 million in 2020. Liquidity of the company remains with total cash of EUR 210 million and additional liquidity lines undrawn amounting to EUR 106 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 due to the strong effort in restructuring and the one-off costs associated to M&A refinancing. That is strong balance sheet is our highest priority. Let us see with more detail on Slide #8, the key figures for the group. Total revenues in the first 9 months of the year amounted to EUR 486 million compared to EUR 495 million in 2020. This represents a 2% increase in revenues in local currency and a 2% decline in euros. These figures include a positive 3Q with a revenue growth of 27%, supported by a positive evolution both in Media and Education. On this expenses side, we have managed to reduce the total expenses by 1% compared to last year despite increase in severance payments. As just said earlier, the EUR 30 million fixed cost reduction plan has been achieved and we will continue to pursue efficiency improvements going forward. It is also important to mention that there is an active ForEx management from now on and in order to protect our dividend in cash. Operating EBITDA is down 32% due to severance payments. There is to highlight that adjusted EBITDA, which excludes redundancies grows by 50% in euros or [ 58% ] in local currency. Again, these figures are improved by a third -- fantastic third quarter performance while adjusted EBITDA improved by 424%. On Slide #9, we have the evolution from EBIT to net profit towards the comparison with previous year is affected by 2020 impairments carried out. On like-for-like basis, the regular lines to highlight in the period after reduction of EUR 15 million of debt interest as a result of the reduction of the bank debt, which is -- which in September 2020 stood at EUR 1.1 billion. Let's move to Slide 10 to review in detail the Q3 cash flow generation. Cash flow before one-offs, M&A and refinancing costs in the quarter improved in EUR 8 million previous -- versus the previous year, driven by the [ operational ] improvements seen in the business, EUR 22 million versus EUR 40 million. The significant improvement despite the higher effort on restructuring cost was mainly due to the breaking growth and the working capital management. On Slide #11, we see the net debt evolution. Net financial debt stood at EUR 743 million compared to EUR 679 million as of December 2020. Please do consider we are impacted by EUR 60 million corresponding to the sale of Santillana Spain and the refinancing competitive in Q4 last year. On the right-hand side of the slide, we have the maturity profile of the debt. I would like to point out that we do not have any maturity events in the next 3 years. But nevertheless, we are constantly evaluating refinancing alternatives in search of new opportunity. it is important to report that the cash position at the end of the period stands at EUR 210 million with additional liquidity lines undrawn amounting to EUR 106 million. Let's now move to PRISA media review. Please, Carlos continue.

Thank you, David, and good morning to everyone. During the third quarter of the year, we continue with the [educational ] restructuring of the Media division, which integrates in Radio and News businesses in Spain and Latin America. I already announced the launch of this new organization in the past result presentation. We [indiscernible] in Q3 and that we are currently [indiscernible]. These organizational changes follow the guidelines of our unified leadership for media assets around a common purpose and strategy, focusing efforts on accelerating digitalization, betting on subscription models and enhancing the global reach of our products. Specifically, the aim of the restructure is to help to proactively target our subscribers, readers, and other people, maximize the value of our content and [indiscernible] made our working culture more collaborative, more agile and that agreement to make it more effective and [ value it ] to address the global expanding industry. Within this new framework, the media business, has done around its economic, almost raise even our EBITDA with more EUR 36 million improvement expenses while keeping momentum in our digital journey, where I want to highlight [indiscernible]. First, in the third quarter, we have been very active in launching new digital projects, 24 new podcasts [indiscernible] user experience [indiscernible]. And we have consolidated our leading position for our [indiscernible] more than 121,000 only digital subscribers. [indiscernible 36% market dedicated to sales paying 100 basis points and is almost 50% market sale. [indiscernible] asked with more than 18 million unique users in digital and more than 1 million subscribers [indiscernible]. Musical subpoenas EUR 9.2 million daily business and 40% market share rate in Colombia with more than EUR 7 million daily business and almost 45% market share [indiscernible] with more than EUR 4 million daily business and 45% market. And last but not the least, we currently have 4 of [ 45 ] more recent podcast in other platforms and 3 of the 5 more recent podcast [indiscernible] first group is allowed in the statement only after the [indiscernible]. Let's move on the next. Regarding our economic, I would like to highlight the operational improvement of PRISA media compared to 2020. In the quarter and the first 2021 nine months revenues have increased by 17% compared to the same period in 2020 and more than 35% digital. This means our digital revenue grew 44%, define the highways of the radio subscribing numbers is more than 300 basis points thanks to the strong work made in cost control and the continued search for efficiency [indiscernible] organization. The media can generate [indiscernible] expenses only increase by 1% excluding severance payment despite the [indiscernible]. In terms of EBITDA, excluding severance in the first 9 months of the year, the improvement was EUR [ 23 ] million out of which EUR 10.5 -- EUR 10.4 million came from the third quarter. [ One-off ] severance expenses amount to almost EUR 50 million up to September and are related to the new organization we are going out, leaner, more efficient and more agile. With this, we have almost break even our full year. This operating improvement is mainly due to a strong recovery of the advertising market in the second and third quarters of the year. The digital growth that partially offset the decline of the paper business and a strong cost control channeled through our new organization. Regarding advertising from January to September, our advertising line grew by 21% plus 18% in Spain, where the whole market grew by 15% and 33% in Latin America. With all our Media outperforming the market, 40% market share is weighted in Spain from 38.6% same period last year, 10.3% market share increase in Spain from 9.5% last year and 39% market share in Colombia from 38.4% last year. About our digital growth, you can see the continuous improvement in our digital KPIs. And as mentioned before, while we are [indiscernible]. In radio, streaming hours have reached an average of 66.6 million per month, 20% more than in 2020. And with podcast, 31.8 million podcast downloads, 38% more. The growth responds to PRISA Media's commitment to the creation of new digital ad content, multichannel distribution and product innovation with lots of initiatives already launched. We have an outstanding performance in capturing only digital subscribers with a 77% increase versus last year, up to more than 121,000 as of today. Our new [ redesigned ] El País launched in the first week of October, as Joseph mentioned before, will enhance our value proposition for our business. And with our impressive growth in digital audience in our sports news outlet, AS, more than 113 million unique browsers, 32% in Spain and 49% in Latin America with a 9% growth from last year. We have performed a very good quarter in digital audience despite the exponential growth achieved last year due to the COVID. This led us to more than 6 million registered users that are key for our future developments. All in all, very good quarter for our businesses, no dimensions where we are laying the foundations of the company for the coming future. Let's hear now about our educational business Santillana.

Thank you, Carlos. This is Julio Alonso speaking about Santillana. [indiscernible] throughout the year, we have seen a significant improvement in business supported by the reopening of the schools. This has allowed us to develop the profit or normalize on the educational content. In Q1 of this year [ South Campus schools business revenue ] significantly affected the 2020 and it has already established [ classes before the operational [indiscernible] without the reduction in the state of [indiscernible]. Q2 was already [indiscernible] Q3 with the [indiscernible] of Northern campaign. The revenue on the stack growth of [indiscernible]. At the same time, the [ Spanish ] market has behaved well of [indiscernible] investment of government in our markets, including [ Mexico, Chile [indiscernible] official figures. For Q4, we expect the good quarter up [indiscernible]. First, the reader team achieved in the [indiscernible] program in the public business of Brazil, while [indiscernible] market share has been achieved, almost doubling the share of the similar program on the various public [indiscernible]. This [ 32% ] market share means [ BRL 229 million ] or EUR 35 million. Second, what we pay in start from [indiscernible] market. Third, the start of the South campaign for the [indiscernible] market, where we expect significant growth of [ recent business ]. Let's move to Slide 17. It is worth highlighting that the almost 2 million students who [indiscernible] with existing [indiscernible] product in the context of the area guidance. Nevertheless, it is true that the most significant growth of students come to propose with a lower unit price and therefore, the product mix in late and [ ACV ] growth of 4% in local currency. This [indiscernible] guidance provided. Subscription models for [ represents ] about 50% of our private market revenue, thanks to the most traditional channels were affected by lower rates of care and [indiscernible] at the beginning of the year. But now we begin to solve some activations in other account. The confirmation of this market [indiscernible]. Additionally, the company maintains a strong [ point on ] resolution of nonconventional cost as always maintaining conduct an investment for the [ Southern campaign for some development ] [indiscernible]. Finally, I want to point out that the company will complete in this quarter with [ both the public and private ] private business according to [ plan ]. I will hand it over back to Joseph.

Thank you. Thank you, Julio. Key takeaways for 2021. All our media assets are expected to continue outperforming the advertising market, taking into consideration that despite the positive evolution, as of today, the advertising market remains volatile. In Santillana, the reopening of schools is allowing to develop a proper and more normalized commercialization campaign that should be reflected in a positive evolution. Additional restructuring measures will be implemented to unlock efficiencies and improved cash flow generation profile. So as a result of that, the forecast for full year 2021 is to end with an adjusted EBITDA, excluding severance, in the range of EUR 95 million to EUR 100 million. Before moving on to Q&A, I'd like to take a quick look on Slide 20 on ESG. I've mentioned earlier, we've set up a Sustainability Committee to continue to improve this area. this quarter, PRISA Group's ESG has been very busy. We're strongly committed to the development of a just society and sustainable growth. The group has set 5 SDGs as priorities, which you highlighted in the slide. And last September, coinciding 6th anniversary and the adoption of the United Nations 2030 agenda. We've launched the Deja buena huella thing simultaneously across all of the group's media reaffirming the group's commitment to the development of the 2030 agenda. So our goal is to go further in the new organization where new Sustainability Committee will be in charge of boosting properly all of this area. I'd like to move on to the Q&A session now.

[Operator Instructions] We will now take our first question from Enrique Yáguez of Bestinver Securities.

I have 4 questions. The first 1 is if you could provide an update about the time frames expected from the carve out between the public and private education business and the debt allocation to the media and education business. Secondly, if you could quantify the level of savings that you expect to achieve this year with the current restructuring plan. And if you plan an additional restructuring measures to be taken next year. Third, in terms of subscribers for base, I don't know if you could provide a medium-term target for them. And finally, in terms of advertising, what are your expectations for next year, and taking into account the excellent performance in the third quarter, you expect to outperform the market as well?

All right. Thanks a lot. I think let's take those questions in order. Perhaps we'll ask Julio to give us an update on the carve-out of public in Santillana, then maybe David could give a sense of the restructuring -- additional potential restructuring measures that could be taken and then we'll close with Carlos on the base subs and the advertising forecast.

We've not been working on the carve-out for months. We are in the [ implementation stuff to ] continue in this quarter. Our intention is starting 2021 under the new organization model. So that it is the correct business of public and private business.

Thank you, Julio. Regarding the second question regarding cost of savings. As we have highlighted, we have achieved EUR 30 million of cost savings 50% are permanent savings and 50% are [indiscernible] associated with the first 9 months of the year. In [indiscernible] we expect to continue increasing the efforts in the -- by the end of the year. And regarding the next year potential restructuring efforts [indiscernible] we would like to highlight the fact that vast majority of the restructuring efforts are going to be taken in the year.

Regarding -- 2 questions regarding the advertising. Our view about the advertising market. Now it's uncertain. We -- it depends on the evolution of the macro conditions in Spain, as you have seen. Our view here is that the market is not going to grow at the same pace as the first month of the second and the third quarter, but we are going to keep our differential market share in this context. So we will keep our -- outperforming the market. But the thing is that the market needs to evolve in positive way. Which at the end, you know that the final quarter is always a good quarter for the whole year. Regarding subs, we have achieved a very good rate of net adds in this quarter, working in 4 lines, mainly. First, we are doing more effective offers focus on BTL, below the line offers. We segmented the [indiscernible] with the campaigns. We are focusing our offers in lower churn and long-term value in subscribers versus short-term subscribers. We are controlling our plan through segmented control measures, and we are improving our -- the engagement of our subscribers, okay? This led us to keep the pace of gaining digital subs, but with 2 conditions. First, market evolution. Spain is maturing and Latin America markets that are not as mature as other markets in terms of digital subscribers in newspapers. And we need that the market needs to evolve quickly to get more share of digital subs. And second, our pace to get new subscribers will depend on the transfer of short-term subscribers we have towards long-term subscribers with lower churn and higher long-term value. So these are all the conditions that will lead us to our new number for the subscribers at the end of the year.

We will now take our next question from the line of Fernando Cordero from Banco Santander.

The first 1 is a follow-up on the outperformance of the price and radio markets. And in that sense, I would like to get a little bit more color on what are the reasons or what are the measures that the company has taken in order to improve market share and to lead that improvement sustainable? And the second question is regarding the radio business, particularly given the increased visibility that you are giving on the detailed KPIs, I would also would like to understand, on which extent -- in which state of the journey are we regarding the monetization of the digital audience in the radio business?

First, regarding the -- our -- the reasons of the -- our outperformance of the advertising market is the reason is that we have the leading brands. So what we are doing is just to make sure in our -- in the market that our leading brands lead us to more effective campaigns. So this is the trend we are doing. And the new team onboarding in the commercial area is doing really well in this sense, okay? Second, regarding digital subscribers. As I mentioned before, this is a continuous work we are doing. We are sophisticating our tool set and our approach in terms of using data and using a systematic approach to select subscribers and to make -- we are working very, very hard to cut into terms. First, caption of subscribers and second, to loyal subscribers, okay, in the long term. So what is our -- regarding your question regarding the journey in monetization, we are doing -- we are keeping our ARPU in this sense, okay? And I mean and this will depend on the evolution of the market. In radio, for example, 5% of our revenues come from digital only, but this depends on the market evolution also, okay? So we are now ahead of the market in terms of digital revenues in rate in this case, but this will depend on the evolution of the market. So it's not only a question of us, but we are doing our own work to lead this transition in the future.

We will now take our next question from the line of Manuel Lorente from Mirabaud.

Can you hear me?

Yes.