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

Good morning. I'm Jorge Bujía, Head of Investor Relations and Director of Management and Risk Control at PRISA. Welcome to this presentation of results for the first half of 2023. In order to explain in greater detail the results that were published yesterday when markets closed. Today's presentations will be headed by Joseph Oughourlian, Chairperson of PRISA. And we will also be joined by Pilar Gil, Deputy Chairperson and Chief Financial Officer of PRISA; Carlos Núñez, Executive Chairperson of PRISA Media; Francisco Cuadrado, Executive Chairperson of Santillana; and Julio Alonso, Chief Operations Officer of Santillana. Without further ado, I'd like to give the floor to our chairperson, Joseph.

Thank you, Jorge. Welcome, everyone, to this presentation of results for the first half of 2023. It's indeed our pleasure to share with you our analysis for PRISA's results for first half of the year. Before going into figures in detail, I'd like to run through the chief highlights for the company so far this year. First and foremost, the company remains focused on reducing its debt load and bringing it under control, which is, as you know, the priority of the firm right now. In this regard, there has been a deleveraging event for the company, thanks to the inflow of funds from the convertible notes operation at the beginning of the year worth EUR 130 million. We've thus been able to repay EUR 110 million of the Junior debt early, resulting in a net debt-to-EBITDA ratio of 5x, which is obviously much lower than end of year 2022, which was above 6x. And by May, 76% of the notes have already been converted into shares. Additionally, interest rates hedges have been arranged to mitigate the impact of the Euribor rate hikes on our back, as will be explained later by our Deputy Chairperson and Chief Financial Officer. The pursuit of this priority goes hand-in-hand with the growth of our businesses. Growth, which has been significant in the first half of 2023, and in line with our expectations despite the uncertain environment. PRISA continues to scrupulously meet the goals in which we committed ourselves last year when we allow our ambitious 2022-2025 strategic plan. I'd like to remind you that this plan is based on 5 strategic pillars that constitute company's framework for future growth. These are the financial stability, focus on continued business development, further growth, leadership in the sectors in which we operate at sustainability. Talking about sustainability. The first half of 2023 has seen us strengthening the governance of the company. We now have a very talented Board reinforced with new members after the latest changes that have commenced, announced at the shareholder's meeting in June. And we've also got the appointment of 2 new Vice Chairperson, Pilar Gil, who's our -- also our group CFO; and Fernando Carrillo. Pilar was in charge of the Spanish institutional side and Fernando of the Latin America side. Let me end this first introductory part with a brief summary of the group's main financial and digital indicators, which you find on Slide -- 6, sorry. And that is also to illustrate the robustness of the results achieved in the first half. Strong revenue growth, 14%, translated into a significant 53% improvement for EBITDA, boosted by margins that have improved by 4 percentage points. And although free cash flow for the first half is lower compared to 2022, this is chiefly explained by temporary issues affecting working capital that should be offset in the second half of this year. Meanwhile, commitment to digital transformation continues to drive the performance of our key digital indicators with subscriptions of Santillana increasing by 9%, and the number of digital subscribers at EL PAÍS is up by 51%. We remain firmly committed to promoting the development of PRISA Video and PRISA audio in our Media business where consumption figures continue to grow quarter by quarter. These indicators highlight the growth, the momentum of digital transformation and the greater efficiencies that we've achieved in the first half of this year. Let's now take a closer look at these results for the first half, and I'd like to hand over to Pilar, our group CFO, who will go into greater detail with regard to group's financial results.

Thank you, Joseph. Hello, everyone. This is Pilar Gil speaking. Let's move to review in detail, the key financial aspects of the first half of 2023. As a starting point, I would like to remark that despite the low impact of the second quarter of the year due to the seasonality of our business, which is always the same in our second quarter. Overall, the first half shows very robust performance in terms of the group's main financial indicators, what I would like to highlight 3 main key points. First, we can see persistent growth in our operating results in both business lines and for all the company's key indicators. Second, free cash flow have performed in line with our expectations despite it was negative in the first half, this is due to temporary issues affecting working capital that should be reversed over the second half. And third, we have reduced debt and maintain a solid liquidity position with available cash amounting to EUR 162 million. Let me now turn to our Santillana group's operating results in detail. In the period, between January and June, revenues reached EUR 441 million, a growth of 14% compared to the first half of 2022. By line of business, we should highlight the growth in education sales by 17%, driven by the strong performance of the Southern campaigns, the growth of subscription models and the extraordinary institutional sales in Argentina which offset lower Conaliteg public sales in Mexico. Meanwhile, advertising sales have grown by 5% in the first half, with increases in both offline and online advertising, both on the radio and in the press, outperforming the overall market evolution. And finally, circulation revenues grew slightly in the first half, up by 1%, boosted by subscription growth, which offset the recurrent offline circulation decline. We can see therefore how despite persistent macroeconomic and sectoral uncertainty, our business remained resilient and enjoyed solid growth in the first half. This improvement in revenues translates into an improvement in EBITDA, which in the first half reached EUR 68 million, representing growth of 53% compared to the first half of 2022. EBITDA margin reached 15.5%, improving by 4 percentage points compared to the same period in 2022. And finally, EBIT is 3.5x higher than in the first half of 2022, as an example of very positive operational performance in first half 2023. [indiscernible] evolution from EBIT to net profit. Despite a solid operational performance, the evolution has been conditioned by the financing results plan. In addition to the increase in financial expenses due to the interest, the financial result has been impacted by, first, the higher financing cost for fair value of the debt since refinancing had a positive accounting impact of EUR 16 million in 2022. While in 2023, there has been a negative impact of EUR 9 million due to the early repayment of part of the Junior debt. And second, adjustments for inflation and negative exchange rate difference -- differences that are largely explained by steeper inflation in Argentina. I would like to remark that we continue to work tirelessly to reduce our level of indebtedness and to mitigate the risk from upward-trending LIBOR interest rates. In this regard, we have arranged 2 new hedges for the interest rates during the first half and this means that now we have almost half of the debt cover, especially EUR 400 million nominal with an average cap on a LIBOR of 2.6%. All the above explained, translates into a net results for the first half of 2023 amounting to minus EUR 36 million compared to minus EUR 14 million in the first half of 2022. Let's now analyze the group's cash flow generation. First half 2023 has seen positive cash generation of EUR 62 million, which means EUR 127 million more than in 2022, mainly supported by the inflow of funds from the convertible notes and lower costs with regard to corporate transactions. All this despite increase in the LIBOR interest rates that has led to a higher interest cost of EUR 14 million and the fact that the operational movement of the results is not yet reflected in cash flow due to temporary issues affecting working capital. I'd now like to focus on the performance of free cash flow over the first half of 2023 and how it compares to the same period last year. First of all, let's remember that the second quarter is not a significant quarter in terms of cash flow generation due to the aforementioned seasonality of our business. Free cash flow was negative at EUR 15 million compared to positive EUR 3 million in the same period of 2022, mainly due to temporary issues affecting working capital. Therefore, the improvement in EBITDA is not yet reflected in cash, mainly because a large portion of the public sales in Argentina and Brazil registered in first half, are pending to be collected. Our expectation is that this temporary effect will be reversed in the second half and the resulting improvement in EBITDA will then be reflected in the free cash flow as well has been impacted by EBITDA and working capital, free cash flow is affected [indiscernible] of 2022, by lower CapEx and lower severance expenses, which contributed to a EUR 7 million cash improvement in this first half of the year. In summary, PRISA shows positive and growing cash flow generation compared to the first half of 2022, with the inflow of funds from convertible notes and lower costs with regard to corporate transactions and offset the higher interest payments and the temporary negative effect on working capital. Let us now turn to the performance of net financial debt. Net Bank debt stands at EUR 801 million compared to EUR 856 million in December 2022, with a decrease of 6% and an improvement in the net debt-to-EBITDA ratio of 1.2 to reach 5x, mainly due to the net funds from the convertible notes, of which EUR 110 million have been used to the early repayment of Junior debt. Taking into account IFRS 16 liability, total net financial debt stands at EUR 866 million compared to EUR 926 million in December 2022. This means a decrease of EUR 60 million. The group continues to present as of June 2023, have strong liquidity position of EUR 162 million. Although we have improved our financial leverage and our efforts are allowing us to strengthen our balance sheet, as I said before, we will continue working on debt reduction so that our business can continue taking advantage of the [ non-news ] growth potential, as evidenced by the results sustained quarter-by-quarter. These are the group's financial results of the first half of 2023. And let me end by remarking that PRISA's performance today continues to remain committed and on course to meeting our guidance of our -- 2023 guidance for [indiscernible] indicators, which means exceeding EUR 900 million in revenue, achieving an adjusted EBITDA margin at -- in the range of 16 -- 17% to 18%, and achieving free cash flow in excess of EUR 40 million. I would now like to give the floor to Carlos who will be explaining in detail, the results of PRISA Media.

Thanks, Pilar. This is Carlos Núñez speaking. It is my pleasure to present PRISA Media results for the first half of 2023, which show an improvement in operating and financial indicators. We continue to forge ahead with our strategic roadmap, and we are on course to achieving the goals set for 2025. Needless to say, the business environment in which we develop our activities is certainly complex. However, PRISA Media's overall results are evidence that the quality of our assets and the efforts we made in all businesses [indiscernible] results, and this is a great motivation for us to continue forging ahead. First of all, I would like to start by highlighting the global reach that both our assets enjoy. Our online and offline indicators show our position of leadership in terms of audiences during the first half of 2023. In radio, we exceeded 23 million daily listeners worldwide, a figure 2% higher than in 2022. Our radio stations are the absolute leaders both in talk radio and in music radio in all the markets where we operate. As for our digital reach and unique browsers, we have a total monthly average of 231 million unique users, 4% down on last year. Bear in mind that we were coming from historic highs, we are experiencing the effects of digital distributors as Google discovered that are biased towards Clickbait content that we do not produce or the [ purification ] of our journalistic content in social networks as Meta. And we keep growing our paid audience at our flagship outlet EL PAÍS. On the other hand, our focus now is on increasing the engagement and qualification of our digital audience as key assets for the coming [indiscernible] and as our key competitive advantage for monetization throughout the basin. Meanwhile, we remain firmly committed to audio and we have significantly increased both the number of downloads plus 4% as well as streaming hours plus 12% to reach a monthly average of 50 million downloads and 88 million listening hours. With regard to print newspapers, only in Spain, we registered an average of 1.2 million daily readers for our [indiscernible], which represents an increase of 2% compared to the first half of 2022. EL PAÍS, almost double the audience of the second newspaper in Spain. In addition, in the Video area, we clocked up a monthly average of more than 135 million [indiscernible] in the first half 2023, which represents an increase of plus 16% over the same period in 2022. Our audience figures continued to improve in the first half of 2023, and our brands continue to be leaders in the markets in which they operate. Meanwhile, the successful evolution of the EL PAÍS subscription model also goes from strength-to-strength, with high levels of subscriber acquisition. We closed the first half with more than 300,000 subscribers, an increase of more than 40% compared to the first half of 2022. The total number of subscribers has grown by 89,000, that's a quarterly average of 21,000 net subscribers per month or an increase of 7,000 net registrations per month. In the first half of 2023, we have continued to strengthen the leadership of our model in the Spanish language market for digital press subscriptions and we have managed to grow at higher rates than expected, which brings us closer to the goal set for 2025 of exceeding 400,000 subscribers. In terms of exclusively digital subscribers, we have reached 271,000 subscribers after growth of 51% in the first half of 2023. All of these makes EL PAÍS subscription model, the absolute leader in the digital presubscription marketing in Spain. Let's now look at how advertising fared in this first half of the year. Advertising is PRISA Media's main revenue source, accounting for 73% of revenue. In the second quarter, advertising markets have slowed down versus the [indiscernible] in the first quarter, for example, in Spain, total market has grown 1.7% in the second quarter, while it has grown 3.9% in the first quarter, mainly as a result of elections. And in Colombian peso, advertising is also slowing down linked to macroeconomic evolution. However, we have managed to increase our net revenue from advertising by 5%, and we have increased our market share compared to our competitors, thanks to our diversified portfolio of assets, radio, press and digital. If we exclude the impact of exchange rates, particularly the Colombian peso, growth is even higher, plus 7%. All advertising markets have strong improvements, online advertising has grown by 13% and offline by 2%. By business, both press and radio saw growth, plus 11% and plus 2%, respectively. The significant growth of Radio in Spain, plus 7% and Radio in Chile, plus 15% are especially noteworthy. And this growth has offset the drop in advertising in Latin America impacted by exchange rate effect in Colombia. Market share in advertising areas where we compete has grown both in Spain and in Latin America, specifically in Spain, it has grown by 1.4 percentage points to reach a 29.1% market share. In Colombia, market share for radio is up by 0.6 percentage points to reach 40.4%. Meanwhile, Chile has enjoyed growth of 3.3 percentage points to reach a share of 28.2%. Additionally, we keep growing our footprint in the U.S. market with a 32.5% growth versus last year. All in all, we keep overperforming the market, thanks to the combination of 4 critical leaders: our diversified portfolio, the quality of our audience, both offline and online, the prescription power of our brands and the best-in-class [ update ] operations. Turning now to operational performance of the business. Our revenues for the period were up by 10% in the first half of 2023, with a digital revenue mix 3 percentage points higher than in the first half of the previous year. As we mentioned earlier, Advertising has grown by 5%. Circulation revenues have grown by 1%, thanks to the growth of the EL PAÍS subscription model, which has offset the decline in offline circulation. In addition to advertising and circulation, our other business lines have contributed EUR 29 million to the total for PRISA Media, in the first half, an increase of 62%, thanks to the diversification of revenues and the incorporation into the perimeter of Lacoproductora, which you will report -- we integrated in the second quarter of 2022, to boost the group's audio-visual production for our own outlets and for third-party platforms. Regarding costs, there has been an increase in variables associated with revenue growth, but fixed costs are controlled and [ barely grew plus 2% ] compared to the first half of 2022, despite inflation pressure. What's more, we are committed to ongoing efforts to improve the efficiency of our cost structure. This improvement in efficiency has translated into a year-on-year improvement in our EBITDA margin, which reaches 7%. First half EBITDA is up by 26% compared to the same period in 2022, reaching EUR 14 million compared to EUR 11 million in the first half of last year. Before finishing up here today, I would like to emphasize that we are most definitely on course to achieving all the objectives that we set ourselves in guidance 2023, [indiscernible] 2025. I would now like to give the floor to Julio, who will be telling us about our Education business, Santillana.

Thanks, Carlos. Hello, everyone. I am Julio Alonso, Chief Operation Officer at Santillana. First of all, I would like to give an overview of the first half of 2023. Santillana closed very satisfactory first half across all its lines of business. With regard to the private market and in terms of subscription models, we closed the most recent quarter with 2.7 million subscriptions to our learning systems. We represent an increase of 9% compared to the previous year. This growth has been 100% organic, that is to say without any acquisition of business. Of the 2.7 million subscriptions, our flexible and global core systems account for 2 million subscribers, while the remainder corresponds to complementary and supplementary systems, mainly for English language learning, but also for reading and socioemotional content. The overlap between systems is around 50% which provides us with avenues for growth through cross-selling and accounting campaigns. In fact, thanks to this strategy, the complementary and English system has grown by 15% comparing to 2022. This growth in subscription models, as foreseen in our plan has been favored by acceleration in the rate of transformation of our clients away from the traditional deductive model and the stock performance of our state networks with a retention rate of 85%. In terms of revenue, the subscription model has seen growth of 7% compared to 2022. But if we look at the figures compared to the whole campaign, which includes data for the last quarter or last year in the countries belonging to the Southern region campaign, growth is 13.5%. Meanwhile, traditional didactic sales have grown by 40%, contributes to the extraordinary institutional sales in Argentina already mentioned before. Without considering the figures for Argentina, growth is 10%, thanks to the general improvement in the countries we operate. Public sales have continued to grow compared to last year. Thanks to the boost in sales in Brazil and Chile. And despite the lower sales for Conaliteg in Mexico, our government began to provide a secondary school's textbooks by its own means, impacting Conaliteg the second quarter of this year. So turning now to the 19, financial indicators. Santillana total revenues have grown by 16% compared to the first half of last year, reaching EUR 235 million. This growth comes as we have mentioned, mainly from the private market, and is worth highlighting the sales of learning system, now account for 54% of sales in the private market, 65% without the extraordinary sales in Argentina, thanks largely to the company's transformation strategy. This growth in sales, together with the [indiscernible] control has resulted in a significant improvement in EBITDA, which has gone from EUR 37 million in the first half of last year to 5 -- to EUR 55 million, in the first half of this year, solid growth of 50%. I would have previously commented the results have been boosted by the extraordinary sales in Argentina. But even within this one-off, EBITDA growth is significant, up by 16% compared to the first half of last year. Finally, EBITDA margin for the first half grew by 5 percentage points from 18.1% to previous year to 23.4% for this year. In summary, Santillana present robust first half results, thanks to the growth of the private business with a positive contribution for the public business system. I would now like to give the floor to Pilar so that he can comment on the group progress in terms of ESG.

Thank you, Julio. On the ESG front, I would like to briefly share with you that during the first half of the year, PRISA has continued to make progress in its sustainability strategy, as set out in our sustainability master plan, with a focus on impact [ of possible management ] of the organization and [indiscernible] governance. In the environmental front, we continue to be #1 [indiscernible] through our content with specific projects, our weather conditions and making progress in incorporating sustainability criteria in the planning and management of our events. In the Social Media, in recent months, we have implemented several initiatives in defense of equal opportunities and also to disseminate ESG criteria to society, with some examples being, the launching of Sustainable Schools contest in LatAm, or the launching of radio program in Caracol and [indiscernible] to bring current social and environmental challenge closest to the audience. And in the area of governance, following recent changes in the composition of the Board of Directors, this amount has 46.7% women, close to parity and well above the 40% established by the law on equal representation in the decision-making bodies. In summary, a strong progress and committed with our sustainability master plan. Thank you very much. And now I'd like to give the floor back to Joseph.

Thank you, Pilar. It's great to hear the progress we're making on sustainability. Let me briefly summarize the key takeaways from the first half results. First of all, both our Education and Media businesses continue to grow, thanks to visualization. Second, we are comfortable, very comfortable with the 2023 guidance that we gave to the market. Third, we're still on track to meet the 2025 targets of the business plan, which was set out last year. Targets which are very demanding, very ambitious, but we're on track. And last but not least, we continue to deleverage and our debt is in check, post refinancing in 2022 and the convertible issuance in January of this year. Thank you, everyone, for listening in. And I guess we'll open for questions.

[Operator Instructions] First question today is from the line of Fernando Cordero from Banco Santander.

Can you hear me?

Yes, yes.

Just two questions from my side. The first one on Education. I'm just trying to understand, are you prepared the performance of the number of subscriptions and learning systems during the second quarter? If we take a look on the historical performance of your subscriptions, it is quite difficult to finance such a level of net losses. And I just would like to understand that -- with just then, we should understand the outlook having a little bit more bumpy performance? Or is it just something that is not recurring? And also at which extent this performance of subscriptions should be linked as well with the nice performance of the didactic model in education. And the second question is on the Media business. Despite the fact that the second quarter, the ad market in the second quarter has not been so strong as in the first, you have been improving materially, your press revenues, particularly on the advertising side. I just would like to understand which are the drivers, particularly in online advertising that have underpinned your performance in the second quarter in press?

Thank you, Fernando. We'll let Julio answer the question on Education and Carlos will take the Media question.

The number of students in system is initially estimated asset on the contract signed with the schools. Later disclosed with the official student census, which is usually slightly lower. And this year in Brazil specifically, the process was [indiscernible] instead of March as usual. So there is a small adjustment in the figures between first and second Q. Additionally, this year, we have signed contract in Peru included the small supplemental products. We decided to report together now in this quarter. But in the last quarter, we reported separate, and I think that is [indiscernible] happened this year, but no repeat any more. Last, we continue with the strategy to transform the contract of -- contract the traditional textbooks market and it's clear -- the strategy of the company. Lastly in the Q3, [indiscernible] Mexico in the learning systems, we think that this will be positive, and we expect solid growth with these figures.

Regarding your question on digital. Our digital advertising growth, 3 key levers here that explain our performance. First, the quality of our audience, in terms of engagement, we have the best engagement in digital media, across all the sectors, which is a key asset for advertisers because of the -- they know where they are investing and the quality of the audience we are providing to them. Second, our [indiscernible] operations. We have best-in-class fees and best-in-class deductive ecosystem. And third, the power of our brands. We are differentiating our value proposition to advertising [indiscernible] our brands. All in all, these results in an overperforming market.