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 Full Year 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 David Mesonero, Group CFO; Carlos Nunez, Executive Chairman of PRISA Media; Francisco Cuadrado, Executive Chairman of Education; and Julio Alonso, Chief Operating Officer of Education. After the session, 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.

Thank you, Pilar. Thank you, everyone, for your attendance today. Before we go into the details of the 2021 results, let me highlight a few things. The first thing is the strengthening of our corporate governance with renewed and committed management teams. The second thing is deep restructuring of our office that is to accelerate the digital momentum and maximize efficiency. And finally, we've reached a refinancing agreement which we're very proud of, and which we'll get into the details. I think the key headline for 2021 is that we beat the guidance that we gave you in the third quarter numbers of EUR 95 million to EUR 100 million of adjusted EBITDA, with an EBITDA, adjusted EBITDA of EUR 107 million. What we saw in Q4 was improvements across the board across our businesses with strong share gains in advertising market, digital momentum and also a normalizing of the situation for our education business in Latin America. First, the commitment to boost digitization is reflected in the set of results, both in education and on the media side. On the education side, we saw a 16% increase in the number of subscriptions in FX models. We're now close to 2 million subscribers throughout Latin America. And that's despite a very difficult year with our education business, which you may remember saw most country with closed schools throughout 2020 and 2021. And on the media side, we saw a 61% increase in digital and new subscribers added by where we've reached 137,000 pure digital subscribers at our leading newspapers. On cash flow, there's now a new financial culture that has been implemented at the company. We're constantly striving to improve cash flow. And I think you can see some of the results of those assets with the cash generation excluding loss that was positive throughout the year at EUR 1.6 million. That's an improvement of EUR 58 million compared to 2020. We've implemented a very lean organization. I mentioned the efficiencies. There's a new strong cost control throughout our businesses. And throughout 2021, we've reduced about EUR 30 million of fixed costs. And those cost cutting measures took place, mostly on the media side but also Santillana and at the corporate level. Last but not least, we've reached and I think I guess that would be the big news today, a preliminary debt refinancing agreement. David, our CFO will discuss further in detail this important milestone for the company. But I just want to highlight that we've got extended maturity. We've got enhanced flexibility. But above all, we've got new lenders that actually believe in this company for the first time in 15 years. I want to take this opportunity to thank them, both PIMCO and Angela Gordon for the confidence that they've shown in the company. Let's go to the presentation. Slide 5, where you can see the evolution of the EBITDA, beating obviously our target for the year. And really the turnaround of the situation starting in Q3 with a very strong finish of the year in Q4. So hopefully, that's a good base for 2022. Let's go to Slide 6, where I want to go through some of the most relevant business unit highlights for Q4. So PRISA Media has been working on laying the foundation of a new cross functional organization, completing a strong restructuring while maintaining the business momentum. I want to take this opportunity to thank Carlos for remarkable work in the space of 6 months, where he was both changing the organization in a radical fashion, extracting cost efficiencies from the business. But at the same time, our businesses were outperforming. And we're doing remarkably well in the space of those 6 months. Santillana has also had an outstanding performance in the fourth quarter with on the private business growth supported by FX subscriptions and a very strong public attraction that will go through. Again, a remarkable performance from the Santillana team in a very, very difficult situation. I mentioned the schools were closed most of 2021. They only reopened throughout Latin America in the late months of the year. And then, finally, on the corporate side, kudos to our CFO, David Mesonero, who led both negotiations ourselves and in this agreement. This was an unfortunate deal, that was signed a long time ago, which frankly was not very flexible and very, very expensive for the company. He'll go through the new deal. But let me say that we're very pleased that we've reduced our leases in a very significant way. And above all, the debt refinancing agreement, which I just mentioned and at this point I should hand over to Dave.

Thank you, Joseph. This is David Mesonero, CFO speaking. Let's move to main group's financial highlights on the Slight 8. In 2021, the operating EBITDA excluding severance payments reached EUR 107 million, 46% better than the same period last year. In the standalone quarter, the improvement was of 44%. The new financial quarter focused on cash management has led to a positive cash flow generation before one-offs of EUR 1.6 million compared to minus EUR 56 million in 2020. During the fourth quarter, the cash generation for one-offs has been EUR 36 million better than Q4 2020. The improvement in the cash flow generation strongly supported by a better than expected evolution of all business lines, cost control and working capital management. During 2021, the company has made a strong effort in one-offs, EUR 67 million looking for solving historical roadblocks that will enable to improve efficiencies. Between that the company remains solid with a total cost position of EUR 169 million euros and additional undrawn liquidity lines amounting to EUR 102 million. Net debt at the end of the period is stood at EUR 756 million versus EUR 679 million as of December 2020, explained by the cash flow consumption in 2021. Due to a strong effort in [ Supreme ] and one-off cost associated to M&A and refinancing completed in 2020, but with cash impact in 2021. IFRS 16 liabilities stand at EUR 69 million, EUR 49 million lower than 2020, after the realization of the sale and leaseback signed in 2008. As of December 2021, net financial debt to adjusted EBITDA ratio stand around 8x. Let's move now to Slide 9, to explain in detail the benefits of the new refinancing agreement, which a significant milestone for the company. The company has reached an agreement with lenders representing more than 95% of our current syndicated loan to implement a new financing structure that provides significant benefits to the company and its stakeholders. The new agreement provides the company with a stable platform to successfully implement this business plan, thanks to the following benefits. First, increases stability with our refinances structured assets. It will provide sufficient headroom going forward. Second, increased flexibility for acquisition, financing, debt repayment, reinvestment opportunities in the businesses, and M&A transactions. Third, improvement costs with Company's net cost of debt decreasing from 7.16% to 5.99%, which effectively implies a 2-year payback period for the new financing compared to the current financing. This course does not include any supreme or underwriting fee that the company may pay in cash or throughout the issuance of warrants. And fourth, maturity expansion, providing the company with 5 years of stability to implement its business plan. As a conclusion, the new refinancing agreement improves the terms and condition over the previous agreement, allows PRISA to fully focus on the execution of the business plan on alliance for the first time the interest of equity and debt holders while increasing the liquidity of our shares in the market. On Slide 10, we have a comparison of the current terms with the new financing terms. The [indiscernible] by splitting the syndicate loan into 2 different tranches, our senior tranche of EUR 569 million and a junior tranche of EUR 181 million. In addition, an agreement has been reached to extend the senior super-senior term loan and LCF lines. In terms of costs, we have managed to reduce the net cost of our debt as mentioned before from 7.16% to 5.99%, reducing the burden of our debt over the group in the coming years. In addition with the flexibility is achieved through the expansion of debt maturities. The elimination of September 23 net debt to EBITDA covenant and with a crucial of margin improvements into ESG metrics for the first time. We expect to close the refinancing with full documentation by the end of March. Moving on, on the rest of announcement of these agreements for our efficiency Madrid and Barcelona. On slide 11, we have some details on the renewed lease terms. The agreement gives the group greater flexibility compared to the previous contracts which as a result of fair negotiation, we provide the group with exit windows for 3 of the buildings of Miguel Yuste complex. The former condition will expire in 2033 and did not contemplate the possibility of relocating offices. In addition, a reduction in the minimum duration that system leases and a reduction in future leased payments have been achieved. The renegotiation of the lease agreement results in the group net debt decreasing by approximately EUR 28 million in 2021, with IFRS 16 debt being reduced by EUR 49 million. In terms of savings, we will achieve an annual blended cost savings of EUR 4.4 million which will entail an average increase in annual blended EBITDA of approximately EUR 1 million. Saving net percent value amount to EUR 14 million and the internal return rate of the agreement is of 20%. To initiate the renegotiation, we had to make a one-off payment of EUR 20 million, which is substantially less than the penalties required to get the contract cancel, with a payback estimated of 4.5 years. This payment has an impact on the 2021 P&L account of EUR 12.7 million. Finally, with the renegotiation of the contract, we have managed to give it an ESG condition by optimizing the space adapted to the reality that encourages the working and worldwide balance, reduce the consumption of resources and allows for more intelligent offices. In conclusion, this transaction reflects the group efforts to focus on maximizing cash generation and leverage reduction solving legacy issues. Let's review with more detail on Slide 12, the key figures of the group. Total revenues in 2021 amounted to EUR 741 million compared to EUR 701 million in 2020. This represents a 9.3 increase in local currency or 5.8 in euros. These figures include a positive Q4 with a revenue growth of 24%, supported by a positive evolution of the media and education. On the expenses side, they have grown slightly compared to last year, which is mainly explained by an increase in one-offs. As Joseph said earlier, the EUR 30 million fixed cost reduction has been achieved, and we will continue to pursue efficiency improvements going forward. Operating EBITDA is in-line with 2020, despite higher severance payments in 2021. It is worth to highlight that adjusted EBITDA, which excludes [indiscernible] by 46% in euros or 56% in local currency and surpasses guidance. On Slide 13, 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 lines to highlight in the period are the reduction of EUR 21 million of debt interest because of the reduction of bad debt. Let's move to Slide 14 to review in detail the cash flow generation. Cash flow before one-offs in 2021 improved EUR 58 million the previous year, driven by operational improvement seen on the businesses. The significant improvement despite the higher number of one-offs was driven by operating growth, CapEx control and working capital management. Finally, on Slide 15, we see the net debt evolution. Net financial debt stood at EUR 756 million compared to EUR 679 million as of December 2020. On the right-hand side of the slide, we have the maturity of the profile of the debt with the current refinancing terms with the new refinancing, the maturities extended to 2026 and 2027. It is important to reinforce that liquidity is maintained with our cash position at the end of the period at EUR 169 million with additional undrawn liquidity lines amounting to EUR 102 million. Let's now move to PRISA's Media overview. Please, Carlos continue.

Thank you, David, and Good morning to everyone. This is Carlos Nunez. During the fourth quarter of the year, we continued with the organizational restructuring of the Media division, which integrates the radio and news businesses in Spain and Latin America. I already announced the launch of this new organization in first half results with active execution in third quarter, and we are currently rolling it out. As we have explained in past months, the organizational changes follow the guidelines of a unified direction for all media assets around a common purpose and its strategy, focusing efforts on acceleration of digitalization, leveraging subscription models and enhancing the global reach of our products. To achieve this strategy and to be able to create a business platform ready for growth, we have relied on 2 pillars, the first being digitalization and the second restructuring. In the digitalization part, we have disposed of the large paper related assets of the company, our printing plant in the region. In addition to the commitment to subscription models, where we have had a growth of 61%, and we have experienced the reversal of the subscriber growth curve. On the other hand, in the commitment to new products, we have reinforced the audio part, strengthening podcast and streaming, becoming the leading company in Spanish alia with more than 400 million downloads and more than 800 million hours listened to in. The latest lever in digitalization is to give our brands a new approach to technology development to continue growing, distributing and innovating in all our digital products. The second lever of action has been restructuring. During '21, staff departures have been implemented to eliminate duplication of functions to build a lean organization. In addition to investing in internal talent, we have strengthened our agreement of outside talent. As well, we have given a new configuration to our newsroom, especially at El País, coupled with closing of non-profitable additions in Brazil. Finally, our business as usual, we have reinforced cost control that will help us to bring new efficiencies to the service. The combination of digitalization and restructuring will result in the creation of a new platform that will allow us to grow and further consolidate our building positions. The business platform is based on 4 simple pillars. The first is a lean cross-functional organization business platform where all products are interrelated. The second would be the scope of the platform, focusing on a global reach to be able to distribute our content around the world. The third would be digitalization in an increasingly digital world. It is important to act all products to the needs of society and to focus on the evolution of current products as well as innovation with the creation of new digital products. Finally, the most important thing is to continue to consolidate the leading position of the business platform with financial delivery. Regarding our economics in Slide 19, I would like to highlight the operational improvement of PRISA Media compared to 2020. Revenues have increased by 14% compared to 2020 with digital revenues increasing by 26%. This moves our digital revenue mix to 24%, bear in mind, the high weight of the re-diverting in our mix. This is more than 200 basis points versus last year. We have improved our behavior in advertising market where we operate. In light in Spain, we have closed the year with a 40% share versus 39% in 2020 and an improvement in the power ratio to 92%, not including associates. In Colombia, we have closed the year with a historical record in advertising revenues in local currency and a 40% share. And there in Chile market performed better than expected in the face of political uncertainty growing 1% versus 2019 volumes. In the past, we have maintained our share levels in Spain to a total sale of 10% in 2021. Thanks to the strong efforts made in cost control and the continued search for efficiency partially helped by the initial running out of the new organization. In the period from January to December, expenses only increased by 1%, excluding severance payments despite the increase in revenues, so consolidating efficiencies introduced last year. In terms of EBITDA, excluding severance, the improvement was of EUR 43 million, out of which EUR 27 million came from the fourth quarter. One short severance expenses amount to almost EUR 32 million in 2021 and are related to the new organization we are rolling out, leaner more efficient and more agile. With this, we have breakeven our full EBITDA with EUR 9.9 million. About our digital growth, you can see the continuous improvement in our digital KPIs. And as mentioned before while we are serving the paper decline gain in market share. In radio, streaming hours have reached an average of 67 million per month, 20% more than in 2020, and we have had 33 million podcast downloads monthly, 42% more. The growth responds to PRISA Media's commitment to the creation of new digital audio content, multichannel distribution and product innovation with lots of initiatives already launched. We have an outstanding performance in capturing subscribers with a total of 177,000 subscribers, out of which 137,000 are only digital as of December 2021. El País leads the market for the subscription model in Spain with a rate of growth in the number of subscribers higher than that of most of the major world theaters in the first 2 years. The average among the large European titles at the end of its first 2 years is 70,000 subscribers, a figure that rises to around 150,000 in the case of Latin America. The subscription model is evolving to offer its subscribers more exclusive, rigorous and quality content adapted to multiple formats. All in all, very good quarter for our business in all 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. First, I would like to confine that Santillana has successfully completed the operational separation of its public and private business without suffering significant designates in the process. In the private business, Santillana post 62% of its revenues from the subscription system in 2021, where it has managed to increase the number of subscribers who trust them by 15% and even more so the number of school that does so. FX subscription model has met guidance for a number of subscribers and revenue in local currency. In the main countries, subscription revenues already represent 87% in Brazil, 75% in Colombia and 67% in Mexico, the total private revenues. Throughout the year, there has been a significant improvement in business supported by the reopening of the schools now standardized. This has made it possible to develop the satisfactory marketing campaign. After the first quarter of 2021, we are [indiscernible] business, we are not significantly affected the year before and it has already started class with the outbreak of the pandemic, March 2020, suffered the consequence, especially Brazil and Colombia with a reduction in sales of the deductive product. A recovery has been verified throughout the year with a special emphasis on the second semester. We have seen the resiliency and relevance of FX subscription models, despite the challenging environment with subscription and hybrid-learning in schools. The last quarter of the year had some solid growth that together with the normalized environment for the opening of the schools going to a positive outlook with the start of the 2022 started campaigns. In the public type business, sales have been better than expected. Thanks to the understanding market set of 32% achieved in Brazil in the national base program, being leaders as well as the good behavior of sales in other markets. We can confirm that the public sector has not suffered a decrease in income during the pandemic, being a solid business and generating cash for the group. If we will go to the next slide, it's all by note that the almost 2 million students who closed the 2021 annual cycle in our subscription systems, maintained price as general characteristics within each product in the context of several economic crisis. The most significant growth has been feasible systems and in English systems with a lower unit price. And therefore, the mix of product generates an ACV growth of 6% in local currency. These figures confirmed the guidance provided at the beginning of the year. Subscription models already account for 62% of our private market revenue. The transformation of the deducted market, based on the test book to subscription models with significant gains in income per student is one of the best pillars of our strategy. The start of sounds 2022 campaigns anticipate very satisfactory results of this. Additionally, the company managed a strong structural cost reduction program while maintaining the necessary commercial investments for the current campaigns once it has developed normally. Comparable revenues in local currency increased by 12% and EBITDA was 21% higher recovering the drop in the first quarter of the year where COVID has not impacted yet the year before. In the fourth quarter, revenues in local currency increased by 45% and EBITDA by 58%. The exchange rate has got a negative impact of EUR 23 million in revenues and EUR 7 million in EBITDA, both are current with a significant recovery for 2022. I will now hand it over to Joseph.

Thank you, Julio. And just to conclude this call, I would say that 2021 was a very strong year for PRISA. Not only did we deliver on guidance, but we beat this guidance by 10% with a very strong Q4. That's despite currencies going against us. That's despite schools being closed for most of the year, hitting impacting our biggest business. And that's despite the media business being in the middle of a major restructuring and still outperforming peers. There's a focus now in this company on cost control, on efficiency across the board, and you see signs of this in all our divisions. There's a focus on cash generation. And if I look at our various businesses, we're very pleased with our media assets that have really outperformed the advertising market by gaining share pretty much in all the regions and in all the divisions. We're very pleased that the reopening of schools is -- will have a very strong impact on -- has had a very strong impact on Santillana and should allow for a strong development, particularly on our ad tech model. And of course, we're delighted with the refinancing agreement, which I won't dwell on. I think David has explained to you. But that really allows us to focus on the execution of our business plan and the development of our equity story. This guidance has been outperformed by fully committed and renewed team. There's a new culture in this company, and that has already translated into strong results. If you turn to Page 25 of the presentation, I'm happy to share with you some of the guidance that we're looking out for 2022. So revenues in the range between EUR 770 million to EUR 800 million, still a healthy growth, an improved EBITDA margin of between 15% to 17%. And we're looking to improve further the cash flow generation of the company. To conclude, I'm happy to announce that we'll be hosting our first CMD on March 22nd. And we'll be focusing on essentially explaining all our businesses and the growth opportunities now that the company is refinanced. We can look forward. And we can look out at the next 3 years. And for the first time in its history, this company will provide guidance and we'll provide targets 3 years out. Before we move to Q&A, I'd like to take a few words on ESG. PRISA's largest commitment to sustainability and has created a specific Board committee with the aim of organizing and promoting the group's sustainability strategy, strengthening the corporate governance policies and aligning the entire management of the organization with the United Nations Sustainable Development Goals. With this decision, PRISA aims to take a step forward in its commitment to sustainable growth, both through its media and its presence in the field of education as well as through initiatives that allow us to make decisive progress in the field of good corporate governance, also incorporating ESG criteria into its financial strategy. Now, I'll open to questions.

[Operator Instructions] It comes from the line of Manuel Lorente from Mirabaud.

My first question probably from the guidance for this year. Whether you can give us a little bit more of details of these, let's say, 6% revenue growth is going to be laid by Santillana or the media assets or a combination of both and also more or less also a little bit of granularity of the margin expansion throughout the different business.

This is David speaking, CFO. Thank you, Manuel, for your questions. Regarding the guidance, it is a combination of growth in both business units. Both companies, both business units are growing next year. In that sense also, please do consider that we have done a fantastic exercise in terms of making the company much more lean. So all this increase in growth that we will see will be transformed into a margin expansion, thanks to this operational leverage.

I see. And one on refinancing, there, just to clarify some of the issues of the announcement, this 6% blended cost of debt is more or less stable throughout the next 5 years or its decreasing or increasing? And also, whether you can detail the exact amount of debt repayments that the company will face in 2026 and 2027?

Regarding the first part of your question, this is David speaking, the 5.99% is a blended cost of the 3 lines that we have, super senior at a price of 5%, the senior at a price of 5.25% and the linear at a price of 8%. The linear is a mix between a 5% peak and a 3% cash. Regarding the repayment, this -- we are just taking the current financing. And we are doing an [indiscernible]. So in terms of the small increase in the size that you are seeing is just a matter of the interest accrued by the big interest that we have been not paying during this few capital during the last few months.

Okay. And just my final question then on the Capital Markets Day, obviously, is a huge milestone for the company. Can you share with us some of the main topics that you expect to cover on this Capital Markets Day?

Well, I think the idea of the Capital Markets Day is to give you sort of our objectives 3 years out and where we see those businesses, how we see them develop in the future, to give you a bit of perspective and to give you a sense of where we think we're going with those businesses.

But I believe that, Joseph, that you're mentioned that they will also include some 3-year forecast for the company. So it's not going to be just to be educative a little bit.

No, that's correct. I think that we want to flesh out sort of some objectives that we have. And we know how difficult it is to put out some forecasts. But at the same time, I think it's a very useful exercise, both for the company and its divisions, but also forecast exercise that we did with our investors to sort of show them the potential that we see with all our businesses, and we see a lot of potential.

I'm sorry, that's just my final question. That's probably for Carlos. In this digitization process of the media assets of the group, I see on your presentation that digital mix already represents roughly 24% of the revenues of the segment. Can you give us some idea of the margin between the 2 revenue types, Digital margins are still well below physical markets, so to speak, because of the different scales of the different business or we are in a more balanced level or even the other way around?

You're talking about margins of the -- margins, yes. I mean I don't have here the current figures, the right figures for the margins of each advertising type especially because it depends on the relationship with our agencies. Okay. You know the brands and the extra brands we pay for the different types of advertising is different in this type, okay? In this sense, in terms of margin, obviously, the more margins in terms of contribution margin we have is in digital and in radio, much than in the depressed, which again is linked to our paper product, okay?

All right. Operator, any other questions?