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

Good day and thank you for standing by. Welcome to the PRISA H1 2020 Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Jorge Bujía, Head of Investor Relations. Please go ahead.

Good morning. This is Jorge Bujía speaking, Head of Investor Relations. Welcome to PRISA's First Half 2022 Results Conference Call. To explain in detail, the results release, today's presentations will be led by Joseph Oughourlian, our Chairman; and we will also have with us Pilar Gil, Group CFO; Carlos Núñez, Executive Chairman of PRISA Media; Francisco Cuadrado, Executive Chairman of Santillana; and Carmen Eulalia Pajares, Management Control Director of Santillana. Following our presentation, we will open the floor for Q&A, and the people on webcast would also have the chance to put their questions. With that, I'll now hand it over to our Chairman, Joseph.

Thank you, Jorge. As many of you have noticed, those that have followed the conference calls of PRISA for the last 20 years, there's a new voice now for Investor Relations, Jorge Bujía, who comes from risk control and will add the Investor Relations function. So let me welcome him. And the -- also voice of Pilar, who many of you have known for years as our Investor Relations, well, she will be now our group CFO. We welcome her. We're very excited. She has a lot of experience. She knows the company very well. With that, and before going into the details of results, I would like to spend a few words to explain the group's key highlights in the quarter. Despite the social economic uncertainties, the group has managed to achieve and operational improvement in both its business lines, media and education. The results for the first half clearly show a recovery along with all the efforts that have been made in 2021 with the efficiency measures taken. EBITDA ex severance expenses reached EUR 50 million in the first half compared to EUR 18 million in the same period in supported by good performance in all our businesses. Education has shown a strong recovery, driven by the growth of subscription models and return to normality in the sector with the reopening of schools, whilst PRISA Media has shown positive results, thanks to the growth in advertising, the boost of -- led by subscription model and the efficiency measures, which I've just talked about. Adjusted EBITDA margin for this period was 12.8%, which is 7 percentage points higher than the margin achieved in the first half of 2021. Our commitment to accelerate the digitalization continues to progress with the improvements of the main KPIs as reflected in this set of results, highlighting the 33% increase in the number of subscriptions in our Edtech models, achieving almost 2.5 million subscriptions. The 65% increase in digital-only subscribers at EL PAÍS reaching 180,000, and the increase in audio consumption, podcast downloads to give you an idea, average market -- our average monthly all your downloads are up to 47 million, which is up 51% versus last year. As announced, PRISA has reached an agreement to acquire 20% minorities of the Radio division that was held by Grupo Godó. The transaction was closed for a total amount of EUR 45 million, and it will be completed in 2 payments. The first one is already done of EUR 30 million, and there will be a second payment of EUR 15 million in the second quarter of 2023. This operation is yet another step forward in the consolidation of the Radio and the Press businesses launched by the company last year and poses the group's continued commitment to this industrial project. In addition, the move allows PRISA to simplify the structure of the division and allowing it with greater flexibility and improved cash flow generation. It's important to highlight that the shareholders' meeting has endorsed the group's new strategy and approved the capital increase of 32 million shares that essentially will complete the refinancing process. If you move to Slide 6, we have the summary of the main group's indicators in the period, which show a positive evolution in the main financials and digital metrics. The strong growth in revenues of 27% has been translated into significant improvement at the EBITDA level, with the margin boosts and also cash flow improvement ex one-offs, while the commitment to digital continues to drive the evolution of the main digital indicators. Turning to Slide 7. I'd like to go through some of the most relevant highlights by business units for the quarter before Carlos and Carmen get into the details of it. PRISA Media continues executing on its new business platform by maintaining the leadership position across all assets, with the advertising growth in line with expectations and the boost of digital subscribers by age. There's increased business focus with the restructuring of the commercial area and the appointments of the new top management to focus on growing U.S. LatAm businesses that was explained in the Capital Markets Day. And finally, I just mentioned the acquisition of the TV production company, Lacoproductora. As for Santillana, we have seen business improvements, both on private and on the public side. Private business growth was mainly supported by the general post-pandemic recovery with the complete reopening of schools and the improvements of the subscription model boosted by the market transformation from didactic to digital learning systems. And that transformation yielding results with an increase in the number of subscriptions achieving 2.5 million subscribers. Public business is in line with expectations due to the government supporting the public sales plan and the consolidation for Santillana's significant market share. Finally, at the corporate level, I'd like to highlight that we continue to reinforce our ESG position with the inclusion of PRISA in the IBEX Gender Equality Index in recognition of the group's commitment to diversity and gender equality. And as mentioned before, the appointment of Pilar as the new Group CFO. I will now hand over to Pilar, who will give you some more color on the financial highlights.

Thank you, Joseph. This is Pilar Gil speaking. Good morning to everyone. I'm really pleased to present this set of results for the first time as Chief Financial Officer of the group. Let's move to Slide 9 to review in detail the key group's financial highlights in the period. The first thing I would like to emphasize is that historically, the second quarter of the year is the quarter with little operating contribution due to business seasonality, especially in the Education business, and this leads to a second quarter which is always cash consumption. In the second quarter, the Education business remains in a transitional quarter between the 2 educational campaigns with the South campaigns finished and mostly recorded in the first quarter, while the North campaigns are about to start. During the second quarter, the upcoming campaigns have begun, so there is an increase in cost, while revenues are not recorded until the educational materials are delivered. That said, and despite the retail operating contribution, Q2 operating figures show a positive evolution both in Education and Media, as Carlos and Carmen will be explaining later on. Cash flow as one-offs in the period remain in line with expectations and according to the business seasonality mentioned before. The EBITDA growth and the working capital management has offset the CapEx increase to support the digital business growth and the higher interest payment, leading to an improvement of cash flow as one-offs of EUR 20 million compared to the same period last year. Total cash flow in the first half was affected by extraordinary impacts, such as the EUR 32 million coming from the Radio's minorities transaction, EUR 9 million from the payment of refinancing expenses and EUR 12 million payment of redundancies corresponding to 2021 restructuring plan. As a result, cash consumption in the period was EUR 65 million. In terms of cash flow generation for the rest of the year, we keep cautiously monitoring the environment, being aware of the macro uncertainty, but we expect Q3 to remain a cash consumption quarter due to the seasonality, while Q4 is expected to be cash flow positive. The group, at the end of June, present a strong liquidity position with EUR 126 million of cash on balance sheet plus additional undrawn liquidity lines for a total amount of EUR 103 million. The improvement of our cash flow generation profile and liquidity position remains our main priority. And to this end, we keep on analyzing any opportunity that could be implemented to optimize our current situation. Net bank debt at the end of the period stands at EUR 834 million compared to EUR 756 million at the end -- as of December 2021, which can be mainly explained by the extraordinary effects in the second quarter. Including IFRS 16 liabilities, net financial debt stood at EUR 904 million versus EUR 825 million in December 2021. This means that net debt-to-EBITDA ratio stands at 6.5x compared to 8x as of December 2021, mainly explained healthy EBITDA improvement. Let's move to Slide 10 to explain in detail the key figures of the group. Total revenues in the period amounted to EUR 388 million compared to EUR 306 million in 2021. This represents a 27% increase, with growth coming both from Education, with an outstanding performance of both private and public business; and Media with a positive performance of advertising and subscription model. In the stand-alone quarter, revenues increased by 20% reaching EUR 178 million. First half 2022 adjusted EBITDA, excluding severance expenses reached EUR 50 million compared to EUR 18 million in 2021, supported by the revenue growth and enhanced cost control. In the second quarter, adjusted EBITDA reached EUR 6 million compared to EUR 1 million in 2021. The operating improvement is coming from improvements in Education, Media and at the Corporate center, which continues with efforts to reduce the cost. On Slide 11, we have the bridge from EBIT to net profit. EBIT was EUR 38.5 million better than the first half of 2021, reaching EUR 10 million, which is explained by the operational improvement. The improvement in the financial result in the period is mainly explained by the accounting effect of the new financing in 2022, which offsets the positive impact that we have in 2021 related to a favorable VAT ruling. And finally, the net result for the period was minus EUR 14 million compared to minus EUR 56 million in 2021, improving by EUR 42 million. Let's move to Slide 12 to review the cash flow in detail. Cash flow as one-offs reached minus EUR 9 million with an improvement of EUR 20 million compared to minus EUR 30 million in the same period last year. On the back of the operating improvements on working capital management, offsetting, first, the higher CapEx of EUR 5 million for digital growth; second, the VAT ruling of EUR 8 million recorded in 2021 after the higher interest payment due to the change in the interest payment period. Total cash flow in the period amounted to EUR 65 million compared to minus EUR 55 million in 2021, mainly explained by EUR 43 million from extraordinary impact, the Radio minorities transaction and the refinancing cost. As I mentioned before, macroeconomic and market evolution will be key to continue to improve the company's cash flow performance during the year. On Slide 13, we can see the financial net debt evolution. Net bank debt stands at EUR 834 million compared to EUR 766 million as of December 2021 as a consequence of the extraordinary impact affecting the cash flow. On the right-hand side of the slide, we have the maturity profile of the bank debt following the new refinancing. And it is important to note that we do not have maturity events during the following 5 years. Besides, we hold a strong cash position at the end of the period, standing at EUR 126 million with additional undrawn liquidity lines amounting EUR 103 million. And before I finish and give the floor to Carlos, I would like to emphasize that I will keep on pushing for the new culture of efficiency in organization. We are focused on deleveraging the company, and we are working every single day to face the future of the group with delivery in mind. Achieve the leveraging and optimizing the cash generation profile, our top priorities. Let's now move to PRISA Media overview. Please. Carlos, continue.

Thank you, Pilar, and good morning to everyone. This is Carlos Núñez speaking. I am pleased to present that PRISA Media first half results show improved operational and financial performance, executing on our strategy as it was defined and explained in our Capital Markets Day. Despite the macro environment and the uncertainties, the set of results indicate that the efforts made in all business areas are yielding results and motivate us to continue moving forward. I would like to highlight 3 key points regarding our business model. First, advertising. During the first half of the year, advertising net revenues grew by 7%, reaching EUR 142 million. Leveraging on a well-diversified advertising mix that combines of and digital, radio, newspapers and magazines and with the Spanish and American footprint, Colombia, Chile, Mexico and U.S.A. This has allowed us to overperform the behavior of the total Spanish advertising market. According to [indiscernible] Spain, plus 2.3% year-on-year and plus 1.3%, not including search classified social and influencers that was the market growth. Bear in mind that in Spain, the market has experienced a strong decoupling between national, minus 3.7%, and local advertising, plus 13.7%. But our strong local position through Cadena SER has helped us to navigate through the decline of national advertising. Additionally, in international markets in America, we have an impressive growth of more than 25%, thanks to 3 levers: beating historical advertising levels, as in Colombia; combining the strength of our outlets around PRISA Media concept; and third, the room for growth we have in highly mature and advanced markets digitally speaking, as U.S.A. Besides, we are reinforcing our approach to international markets with our CEO for America. The combination of these factors gives us a leadership position among other media houses in markets where we operate. This fact allows us to have price premiums versus our competitors. Second, let me highlight our leadership position in terms of audience. During this quarter, this has been reconfirmed across all our [indiscernible]. According to the latest Studio General de Medios released early in July, we continue to lead in both Generalis radio stations, with Cadena SER achieving a daily average of 4.1 million listeners and music radio stations with Los40 achieving a daily average of 2.8 million listeners. EL PAÍS maintained its leading position in the Spanish press being the best-selling daily newspaper in Spain. In Colombia and Chile, we'll continue to be the #1 radio station with improved market position. In the digital part of the audience, according to the GfK market research, PRISA Media holds leadership with 3.4 million daily users and more than 13 million monthly users across all our outlets. And third, we are having a great performance of EL PAÍS digital subscription model. At the end of June, the total number of EL PAÍS subscribers was almost 220,000, 180,000 pure digital. And it is worth mentioning that excluding the launching quarter, this last quarter was the best ever in terms of net additions, with almost 24,000 new net subscribers and more than 43,000 net additions during the first half of 2022. Since second quarter 2021, we are working hard to accelerate the acquisition of new subscribers and total net subscriber growth is 45% year-on-year based on an exceptional acquisition rate and keeping outstanding churn levels, 2.5% monthly. And all of this, while gaining market share in our paper edition where our circulation declines at lower rates than other peers. These 3 levers -- advertising, audience and subscribers, combined with an active cost management policy, has allow us to reach EUR 11 million EBITDA versus minus EUR 1 million in 2021 and EUR 14 million EBITDA ex severance expenses, as you can see in the next page. In particular, revenues in the period have increased by 6%, with digital revenue mix slightly below previous year mainly because of the high weight of the broadcast radio advertising in our mix. By geography, it is worth highlighting the increase in LatAm contribution supported by the outstanding growth achieved especially in Colombia. In terms of costs, we have experienced a significant increase in some variable cost as paper and energy that has been offset by our continuous actions to kill inefficiencies in our fixed cost structure. And all of this with the continuous improvement of our digital KPIs, accepting the unique process as we come from maximum levels last year, and we are experiencing some effects from the changes of algorithms, especially Facebook. Listening hours have reached an average of 79 million per month, 19% more than in the same period in 2021. And we have had 47 million multi-podcast downloads, 51% more. The growth responds to PRISA Media's commitment to the creation of new digital products, creating an audio across division, which integrates all the group's nonlinear audio content. We have achieved more than 7 million registered users across all our outlets that are the critical assets to manage on our customer data platform that we are currently developing and that will provide us 3 competitive advantage. First, acquired transfers and intelligence of all data of our readers and listeners that will allow to improve our value proposition to our advertisers; second, automatize personalization of our content and user experience to improve the engagement of our clients and cross pollinate around all our audits; and third, being a differential position in the programmatic space in a copious environment. All in all, and as you have seen, the first half of the year has been a very positive one despite uncertainties. We have achieved great operational and financial improvements, and we continue to move forward with our business plan to grow and consolidate the largest Hispanic media house. Let's hear now about our Education business, Santillana.