Edited Transcript of A3M.MC earnings conference call or presentation 27-Feb-20 12:00pm GMT

The new area, which is the content and production division, has reached EUR 96 million, which means an increase of 66%. And it’s mainly driven by our cinema activities and especially Klaus, which has represented EUR 33 million, which is a one-off, both in revenues and in OpEx; and the new program deliveries of Atresmedia Studios production, which is doing quite well so far.

About the radio activities, total net revenue was EUR 83 million, which means a little bit better than previous year and very much in line with the radio advertising market.

Total OpEx has been EUR 855 million, which is exactly the same amount that we had in 2018. Decline in our programming costs was offset by the content activity of Cinema & Studios. There’s a change of perimeter that makes the things a little bit more complex to analyze.

The EBITDA for the whole year has been EUR 184 million, which is just EUR 3 million less than the 1 we obtained in 2018. That implies an EBITDA margin of 18%.

The net profit has been EUR 118 million, which has meant an increase of 33.8%, which compared with the one we obtained in 2018, which was EUR 88 million. But as you know, this was — because we have the write-off of the tax laws that we need to make the write-off because of the auditor’s approach.

The net debt has been EUR 193 million, which compares with the one we obtained in 2018, which was EUR 231 million. So it means that now, the net debt-to-EBITDA ratio is 1.05. So we have decreased our debt position. And the operating cash flow has been the same as the EBITDA. So it has been EUR 184 million.

In addition to this, I mean, the Board yesterday decided to present to the General Assembly to pay a complementary dividend of EUR 0.25 per share. That should be, if this decision is approved by the General Meeting, will be paid in June this year, June ’20.

And well, this is the highlights, what has happened in the year for the company.

Thank you.

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David Gómez Baquero, Atresmedia Corporación de Medios de Comunicación, S.A. – Director of IR [3]

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Thank you very much. We move on to the Q&A session, please.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question comes from Annick Maas from Exane BNP Paribas.

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Annick Tonie Maas, Exane BNP Paribas, Research Division – Analyst [2]

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My first question is on the TV ad market for Q1 and the full year, if you could give us some insights there, that would be great. Second one is on OpEx, what we are expecting for the full year? And third

one, if you could just give us an update on the production union between Atresmedia Studios and Telefónica Studios, that would be great.

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Silvio José González Moreno, Atresmedia Corporación de Medios de Comunicación, S.A. – CEO, MD & Executive Director [3]

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About the advertising market, I mean, it’s difficult to envisage what’s going to happen. What I can just tell you is that January has been bad month because, I mean, has had a performance of minus 10%, but February is doing quite well. Now it will be slightly positive. And so far, what we perceive for March is also that it could be relatively good month. So that’s what I can tell you. So I mean, it’s really that we were concerned, very much concerned about January performance. But now we do think that things are more in line what we expected, so — which is very much in line with the consensus of the market.

About OpEx. Well, the point is difficult to analyze because, I mean, the perimeter [parameter] has changed with the content division. But we will — I mean, the OpEx, we expect is to — the one to obtain the EBITDA versus the consensus for the market. So that’s the most I can tell you because, I mean, things are so different from the perimeter point of view and things change that much, that it is difficult for us to give you a clear view on that.

And about the merger with Telefonica, I think that — I mean, all the work is done. We are just waiting for the permission of competition authorities. It would be Brussels. We do think that we can obtain it by the end of March. And so from that moment on, we are just prepared, and the new company will take 1 month or something like that. And the new company will go on working. So that’s my answer to the 3 questions.

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Operator [4]

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(Operator Instructions) The next question comes from James McKenzie from Fidentiis.

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James McKenzie, Fidentiis Equities S.V.S.A., Research Division – Head of Research [5]

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Just a quick follow-up. I mean, on the TV market, first of all, any sort of feeling for Q1? I mean, March is obviously the most important month of the quarter. Could Q1 be flat, for example?

And then I wanted to ask a question on the fine that’s come on from the CNMC. I mean, first of all, I think you’ve got a court case, which is coming up. Well, I’d like to know when the court case is coming up.

And where you think — or whether you have to pay the fine in the meantime? So there’s 2 questions there.

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Silvio José González Moreno, Atresmedia Corporación de Medios de Comunicación, S.A. – CEO, MD & Executive Director [6]

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Yes. Well, for the market, and I mean, I think that the first quarter should be slightly negative if March is as we now foresee it. So it will meet — the first quarter which has minus 2%, minus 3%. So — because, I mean, January being minus 10%, it will be difficult to get a flat market. But I think that how do we see March today and the performance of February, I think for the first quarter, the market will be slightly negative. That means minus 2%, minus 3%. That’s — but I mean, things change very quickly.

And about the CNMC resolution. Well, I think all this — I mean, we do think that it could take a long time until the final solution from the court. So — and it means a long time, it means that it could be more than 4 to 5 years until we have a final decision. So we — I mean, the procedure is slow and it will take that time. So until 4, 5 years, we won’t have the final solution for this issue.

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James McKenzie, Fidentiis Equities S.V.S.A., Research Division – Head of Research [7]

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But Silvio, in the meantime, do you have to pay? Do you have to provision the fine?

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Silvio José González Moreno, Atresmedia Corporación de Medios de Comunicación, S.A. – CEO, MD & Executive Director [8]

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No, we don’t have to pay. We just have to guarantee it. And we don’t have to provision it because, I mean, so far, I mean, our lawyers, we have a report from them that they say that they don’t find that — I mean, the reasons that the CNMC has provided in order to put the fine are absolutely something that cannot stand any analysts. And so we do think that, when it comes to court, and we will have — I mean, high probabilities to win. So there’s no provision, and we don’t have to pay.

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James McKenzie, Fidentiis Equities S.V.S.A., Research Division – Head of Research [9]

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And what about — I mean, they also — I mean, there was also certainly the suggestion that you would have to change commercial practices. This is the removal of the volume discounts to media buyers. Do you think — I mean, what’s your feeling there? Is that something you’ll have to apply?

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Silvio José González Moreno, Atresmedia Corporación de Medios de Comunicación, S.A. – CEO, MD & Executive Director [10]

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We already are fulfilling that recommendations. Because the point here is, if you don’t do that, they can come to you again and get another fine because of that. Because in the meanwhile, until the court decide as whether you have reason or not, the recommendations of the CNMC apply.

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James McKenzie, Fidentiis Equities S.V.S.A., Research Division – Head of Research [11]

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Okay. So as of — I mean, does this include not paying volume discounts to media buyers?

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Silvio José González Moreno, Atresmedia Corporación de Medios de Comunicación, S.A. – CEO, MD & Executive Director [12]

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Yes. And that’s what we’re already doing. I mean, we are not paying rebates to the media agency because, I mean, that was one of the recommendations we’ve been — a recommendation you have to fulfill in order not to be fined again because of the…

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James McKenzie, Fidentiis Equities S.V.S.A., Research Division – Head of Research [13]

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Sure, sure, sure. I mean — and is that going to be reflected in your P&L because, in essence, that’s an increase of 4% in unit revenues, isn’t it?

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Silvio José González Moreno, Atresmedia Corporación de Medios de Comunicación, S.A. – CEO, MD & Executive Director [14]

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So well, it could. But I mean, the point here is that now, we are — it’s a new phase of negotiations with the media agencies, a new world, it’s a new ecosystem and we need to see how can we evolve that. Because, I mean, it means that in a sudden, there is something like 4% of the revenues that you should see how can you pay them without giving them something that could be analyzed or pursued as competitive advantages against the small ones, which was the reason why the CNMC say the rebates are something that we could not do.

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James McKenzie, Fidentiis Equities S.V.S.A., Research Division – Head of Research [15]

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Understood.

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Silvio José González Moreno, Atresmedia Corporación de Medios de Comunicación, S.A. – CEO, MD & Executive Director [16]

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I mean, it’s very soon to see which will be the final effect of the new commercial policy.

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James McKenzie, Fidentiis Equities S.V.S.A., Research Division – Head of Research [17]

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Okay, okay. And then just a follow-up, if possible. I mean, it sounds — I mean, Q1 is slightly negative 2% to 3%. If that was something that was something continued for the rest of the year, do you think it would be possible to repeat EBITDA, i.e., EUR 183 million, I think you’ve done, in 2020?

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Silvio José González Moreno, Atresmedia Corporación de Medios de Comunicación, S.A. – CEO, MD & Executive Director [18]

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Our consensus is a little bit lower than that. I think that we could get consensus. And on top of that, well, we will see whether we can do that or not. But I mean, it’s difficult now to say that in the very beginning of the year. We don’t know what’s going on with the market. We also don’t know what’s going on with production company. We don’t know what’s going on with our video-on-demand platform. So I mean, the perimeter is that difference now, that is difficult to see what will — how will the year finish, if the market is that — with that performance.

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Operator [19]

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The next question comes from Patricia Paré from UBS.

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Patricia Pare, UBS Investment Bank, Research Division – Associate Analyst [20]

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I have 2 questions. The first one is on the improvement in the TV advertising market that you’ve seen in February versus January. Can you talk a little bit about what is driving that? Is it certain categories? Is it more broad based? And is it may be like pricing-led or volume-led?

And the second question is just on studios. What is the pipeline looking for 2020 and how many deliveries are you expecting this year?

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Silvio José González Moreno, Atresmedia Corporación de Medios de Comunicación, S.A. – CEO, MD & Executive Director [21]

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Yes. About the market, the performance in January was more volumes than prices. I mean, prices are — in January has been, on like-to-like basis. You should know that we have a problem on top of that, what we call the more value type of advertising. Other ones who are suffering much, most — so the households’ buying purchase is the one with — in the market. So that at the end, the price is lower. But in the negotiation process, price is more or less flat. That’s what we expect for the — also for February and March will be a little bit — we do expect prices to be increased by 1% to 2%. So it’s more a problems of volume, not prices.

What sectors? The sectors that has performed worst in January has been automobile, has been financial, has been also telcos, but telcos has done very well in February. So these are the ones that has been worse in January. Well, let’s see what’s going on because in February, the telcos has done very well. So I wouldn’t know if it’s something that is facing of the marketing budget or not. We do think there’s more that than any other thing. About the production company, we expect to more or less double the revenues we have had this year in the studios.

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Patricia Pare, UBS Investment Bank, Research Division – Associate Analyst [22]

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And sorry, what was your revenue in studios that you did this year within the content production segment? How much was it?

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Silvio José González Moreno, Atresmedia Corporación de Medios de Comunicación, S.A. – CEO, MD & Executive Director [23]

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Yes. It was something like EUR 12 million. So it will be more or less in rate to have EUR 25 million to EUR 30 million.

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Patricia Pare, UBS Investment Bank, Research Division – Associate Analyst [24]

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Okay, thanks. And maybe just one…

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Silvio José González Moreno, Atresmedia Corporación de Medios de Comunicación, S.A. – CEO, MD & Executive Director [25]

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But remember that when we merge, all the things comes out because, I mean, it’s — the new company will be 50-50 between Movistar and ourselves, Telefónica and ourselves. So it change completely the P&L of Atresmedia and the balance sheet of Atresmedia.

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Patricia Pare, UBS Investment Bank, Research Division – Associate Analyst [26]

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Okay. And then the consensus number that you were referring to in 2020 for EBITDA? What’s that number?

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Silvio José González Moreno, Atresmedia Corporación de Medios de Comunicación, S.A. – CEO, MD & Executive Director [27]

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It’s between EUR 160 million and EUR 170 million.

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Operator [28]

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The next question comes from Fernando Cordero from Banco Santander.

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Fernando Cordero Barreira, Grupo Santander, Research Division – Equity Analyst [29]

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Three questions. And the first one is related with the addressable TV initiatives. And in that sense, just to get some update on how are you positioning Atresmedia in that front? We already have some insights from your side last December when you presented some views on that. But I would like to know if you have facing more traction of the market related with that? Or is something that is still to be particularly impacted to — or impacting to the top line?

Second question is regarding the tax rate, 25% in this full year 2019. It seems — and correct me if I’m wrong, that it’s difficult to fully translate the deductions on Spanish content production into a tax rate, just to understand, if my reading is correct or we should assume that 25% should be the run rate in terms of tax rate going forward?

And my last question is regarding partially related with the first 1 — is related with the digital revenues. Digital revenues in your all division is increasing 3% year-on-year in the fourth quarter. This is below market trend. And when I say market trend, for example, the Internet-related revenues in — reported by Infoadex, just to understand, what are the reason for the — for example, for the deceleration versus the third quarter?

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Silvio José González Moreno, Atresmedia Corporación de Medios de Comunicación, S.A. – CEO, MD & Executive Director [30]

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Yes, about the addressable, well, we begin our test by the last quarter. It’s doing quite well. And I think the advertisers do like that, but we are in the very first steps. And we also need to finally agree with the competition authorities, which is the way we can work with. Because, as you know, there’s clear if the advertising you have there, it counts as the 12 minutes or not — and so which type of advertising is, let’s say, identified as digital, so it does not enter in the limit or not. So we now need to talk with the CNMC in order to see whether — how can we manage that. But I mean, it’s doing well, and we expect — I mean, it’s not significant in terms of money for this year. But I think it’s a new tool that we can get some extra in the future. So it’s doing well, but we need to really see, from a legal framework, how can we operate this new type of advertising.

About tax, as you know, there are some limits of the deductions, both coming from the losses of laSexta and also from the deductions of investment in audiovisual — on the audiovisual projects. That’s why the tax rate seems to be different. In terms of cash, there is no effect. But in terms of the accountability, it is, and it will be in the future. Because, I mean, we don’t like to make this deduction, whether it could be difficult to recover or we don’t know which would be the pace of recovery in the future. So this will be the tendency for the next year. And about the digital revenues for the year, I mean, we have grown in line with the market, but the point that has — it could be seem — we have had a performance, a little bit worse than the market is because of the behavior of Latin American operations office market, which has been a little bit weaker than we expected. As you know, we operate in Chile, and Chile has been disaster because of the riots there. We also operate in Brazil. Brazil is not doing quite well. We also operate in now Argentina, and in Argentina, you have default. So I mean, if you take out all these effects, the growth of the digital area has been very much in line with the market.

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Operator [31]

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Thank you. Ladies and gentlemen, there are no further questions in the conference call. I will now give back the floor to the company. Thank you.

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David Gómez Baquero, Atresmedia Corporación de Medios de Comunicación, S.A. – Director of IR [32]

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Well, thank you very much, all, for the attendance. And just to remind that you can contact the Investor Relations department if you have any other further questions. Thank you very much. Bye.