Good morning, everyone, and welcome to Grupo Televisa's Fourth Quarter 2019 Conference Call. Before we begin, I would like to draw your attention to the press release, which explains the use of forward-looking statements and applies to everything we discuss in today's call and in the earnings release.

Please note that during the call management will be referencing the presentation available in the company’s Investor Relations website, at www.televisair.com. I will now turn the call over to Mr. Alfonso De Angoitia, Co-Chief Executive Officer of Grupo Televisa. Please go ahead sir..

Thank you, Elso [ph]. Good morning, everyone, and thanks for joining us today. With me today are Salvi Folch, CEO of Cable; Alex Penna, CEO of Sky; Patricio Wills, Chair of Televisa Estudios; and Carlos Ferreiro and Antonio Lara, Corporate Vice President of Finance and Administration, respectively.

It has now been two years since Bernardo and I became Co-CEOs of Televisa. The transformation of the company continued throughout 2019 with many milestones. All things considered, we are proud of the results for the year. 2019 was a challenging year because of basically three events which made the comparison to 2018, particularly difficult.

The first one had to do with the transmission of World Cup in 2018, which brought incremental advertising revenue. The second one, we sold certain rights of the World Cup in Latin America which resulted in non-recurring licensing fees.

And finally, as one of many public policy measures of the new administration government advertising revenue dropped significantly in 2019. From the beginning of the year and in order to protect margins, we prepared for these events by maintaining a strong discipline in costs and expenses, especially in our Content business.

Also we continue to focus on the execution of the strategic initiatives we established in our core operations. During the year, we achieved relevant operating milestones which are listed on Slide 3 of our investor presentation. In Cable, we achieved double digit growth in revenue and operating segment income and our margin remained very strong.

This is remarkable considering the slow down we saw in net additions across the industry, which we believe resulted from the deceleration at the macro level. Also we are proud that as a result of high levels of service, churn remained low.

In the case of Sky and in spite of the challenges that DTH faces around the world, we resumed growth in video RGUs after the disconnections that followed the conclusion of the World Cup. I think we did well with broadband where we continued building scale. And in Content we continued with the modernization of our productions.

We made our drama shorter, updated our storylines and increased production values. We achieved great viewership levels with many of our new programs, which also helped Univision regain its leadership.

As a result of all these milestones, as you can see on Slide 4, during 2019 consolidated revenue grew 3%; operating segment income grew 5.4% and the margin increased by 70 basis points.

We have not adjusted these figures for the difficult comp that resulted from the drop in government advertising or from the incremental ad revenue from our transmission of the World Cup. They do exclude the non-recurring licensing of the rights to the World Cup in Latin America. Now moving onto Cable, let me turn it over to Salvi..

Thank you, Alfonso. In Cable, we’ve continued to deliver solid results. During the fourth quarter we added 115,000 RGUs in our MSO segment. Broadband posted a small sequential improvement when compared to the third quarter. For the full year, as illustrated on Slide 6, we added 811,000 RGUs, equivalent to a growth of 6.8%.

In total, for the three services, we reached 12.7 million RGUs at the end of the year. As expected, broadband and voice were the main drivers of growth. We had a small decline in video RGUs during the year. We are working hard to reverse this trend.

We continue expanding our network and closed the year with more than 140,000 kilometers, 32% of which is fiber optics. We now reached over 15.3 million homes capable of receiving 100 megabits with our network.

As mentioned earlier, in 2019, [indiscernible] remained under control as the number of voluntary disconnections and travel costs continued to come down. Also, we continue to push for the sale of bundled third-party OTT services. I am very happy with our progress with this initiative.

We are making it as easy as possible to subscribe to OTT offers, such as Televisa's Blim, Netflix, HBO, Fox, Starz and others. We are growing at a good pace, and we're also driving the adoption of faster speeds. For example, the pace of growth in average speeds accelerated in 2019.

And the average monthly data usage increased by more than 21% during the year, exceeding 200 gigabytes per month. In terms of revenue, as you can see on Slide 7, our Cable business posted double-digit growth of north of 15%, both in the fourth quarter and for the full year.

Similarly, operating segment income delivered double-digit growth of 13.5% in the fourth quarter and 16.3% for the full year. Organically, excluding the Axtel acquisition in December 2018, full year operating segment income growth was also strong at 11.4%. In our enterprise business, during the fourth quarter, we posted revenue growth of 15.8%.

For the full year, we posted a revenue and operating segment income growth of 10% and 13.2%, respectively. This is the fastest pace of growth since 2016. As a result, operating cash flow reached MXN 5.3 billion, a year-over-year increase of 77%. In terms of our capital expenditures, we are expecting them to come down in 2020.

Many years ago, we saw that we had a unique opportunity in front of us in a highly concentrated market with a lack of alternatives for telecom services and the potential increasing demand for broadband. For that reason, our Cable operation launched an investment program to expand and upgrade our network.

We started by deploying fiber-to-the-curb and increasing the number of nodes throughout Mexico City. We followed by upgrading our cable network in other cities. Also considering that the multiple companies we had acquire had underinvested, we upgraded much of their infrastructure, including a major overhaul in Guadalajara.

More recently, in 2019, we deployed fiber-to-the-home in the city of Monterrey. We did not want to wait for demand to pick up in order to make these investments. The CapEx-heavy phase of our Cable business is behind us, so the CapEx to sales ratio should continue to decline.

Cable CapEx as a percentage of revenue reached 30% in 2019, down from 34% in 2018. In 2020, we expect this figure to come down further. Going forward, capital expenditures in our Cable division will be directed at supporting growth, expanding our enterprise business and maintaining a world-class network while increasing our footprint.

I am confident that we have one of the best telecommunications network in the region. Our extensive infrastructure should support our efforts in 2020 to continue increasing our share of broadband customers. Also, it will help us provide faster speeds as the needs of our customer evolve.

This year, we will also be focused on resuming growth in video subscribers. Among the steps we will take, we will continue to strengthen our position as the main aggregator of OTT services in Mexico. We believe that we have all the tools necessary to continue expanding operating cash flow in 2020..

Thank you, Salvi. Great job. Now let me turn it over to Alex Penna, CEO of Sky..

Thank you, Alfonso. Moving on to Sky. As indicated on Slide 9, we closed the year with 7.4 million video RGUs and 386,000 broadband RGUs. We added 67,000 in broadband RGUs during the fourth quarter for a total of 294,000 for the year. In terms of revenue, growth during the fourth quarter was marginally down by 1.5% and for the full year by 3%.

This is mainly explained by the loss of video customers, mostly prepaid, who dropped their service during the fourth quarter of 2018 and the first quarter of 2019, following the conclusion of the 2020 World Cup. Full year operating segment income margin was 42.7%.

In order to support the launch of our broadband offer, we have been allocating more sales, marketing and operating resources to build our broadband business. This explains in part why the margin is somewhat lower than the prior year. The lower video subscriber base also had an impact in our margin.

During 2019, Sky continued to be a very strong contributor to operating cash flow, reaching MXN 5.3 billion. We are happy with the progress we have made with our broadband offer. In 2020, we will continue to look for other ways to grow our presence in the telecom market, ranging from offering faster speeds to launching additional broadband services. .

Thank you, Alex. It’s great that you were able to reverse the trends that we have seen in the previous year. I will now turn it over to Patricio for a discussion of the progress we have made during the year in our content offering..

Thank you, Alfonso. Our efforts to reinvent Televisa's content continued to pay off in 2019. For example, 18 of the 20 most watched programs in the country during good days were broadcast on television.

Also, as we mentioned in our prior earning calls, our productions in Mexico are reaching our largest share than those of the leading production houses for broadcast television in the United States as a percentage of total population. Please refer to Slide 12.

This comparison shows that broadcast television continues to be a very important part of entertainment in Mexico. As a matter of fact, due to our efforts to [indiscernible] our content, viewership of broadcast television has been growing. According to Nielsen, in 2019, it was 13.4% higher than 2016.

Also, the modernization of our content is helping us widen the gap versus our competition. During the fourth quarter, total audience in our flagship networks was more than double the audience of our process competitor. We remain the leading producer of Spanish language content by a big margin.

Additionally, our production helped Univision become the fastest-growing portfolio of networks in prime time regardless the language. During November slate, Univision network outperformed Telemundo across many key day parts among viewers ages 18-49. For the full day, for example, Univision outperformed Telemundo by about 23%.

Also, UniMas, which is Univision's second broadcast network, was repositioned with a more soccer and brand-new reality programming. This allowed it to grow its prime time audience in the fourth quarter by around 30%. Univision is the undisputed home of soccer in the U.S., regardless of language.

In 2019, Univision aired 61 of the top 100 matches and over half of all soccer views in the USA. The success of our content has resulted not only for producing shows with a new storylines that appeal to younger viewers, but also updating and reinforcing our traditional comedies and dramas, which our current audience continues to seek.

For the coming year, we will continue strengthening our content offer. For example, we will produce more than 1,000 hours of original prime time comp. We will continue to innovate in the formats and storylines..

Thank you, Patricio. Now let me address the financial results in our Content division. During the fourth quarter, Content revenue and operating segment income grew 2.4% and 7.1% respectively. The main driver was licensing revenue, which expanded by 7.7%. The largest component of licensing revenue is Univision's royalty.

During the quarter, royalties reached $101 million. This is an increase of 15.2%. We also saw advertising sales stabilize, posting a small growth of 0.3% in the fourth quarter. Moving on to the full year. As you can see on Slide 14, Content revenues declined 4.6%.

This is primarily explained by the drop in government advertising as anticipated at the beginning of 2019. It is also the result of a marginal decline in core private sector revenue by 1.8%. This decline is mostly explained by the economic slowdown throughout the year.

For the full year 2019, royalties from Univision increased by 1.4%, reaching $389 million and achieving a record high. As I mentioned earlier, we were disciplined with our cost and expenses throughout 2019. This was particularly difficult considering that we invested 24% more per prime time episode.

In addition, we have to assimilate the inflationary increases in our cost base, including payroll. At the end, we were able to realize savings of close to MXN 900 million in 2019 when compared to the prior year and reached an operating segment income margin of 36.3%, which is pretty much in line with the previous year.

Now in terms of our 2020 upfront. As we indicated during our last earnings call, Bernardo and I decided to move the negotiations of that upfront to the first quarter of this year. This is a change in the way in which the negotiations have taken place at the company for almost 50 years.

We felt it was not strategically beneficial for us to negotiate the upfront at the same time as we were negotiating the fourth quarter scatter market sales. So far, negotiations have been very difficult, but we're moving in the right direction. It was a big step, and we feel good about it.

We are realigning prices, standardizing rates and asking for volume increases. We feel this is the right moment to implement these changes. After revamping our content, our productions are delivering great audiences. Last night, we had a record-breaking stretch of six back-to-back shows on our flagship channel.

Also, with our four free-to-air channels, our 25 paid television networks and our digital properties, our unduplicated reach is like no one else's. As part of this initiative, which Bernardo and I are directly leading in the company, we have met with the CEOs of our top 50 advertising customers.

So far, we have concluded negotiations with a substantial portion of the clients, including some of the largest ones, but we still have some important ongoing negotiations. In most cases, we have been able to increase both volume and pricing. Moving on, capital expenditures were $992 million during 2019, in line with our guidance.

For 2020, we expect that capital expenditures will be close to $890 million or lower by about 10%. This reduction will result from lower capital expenditures in our Cable division. As Salvi explained, the capital-intensive phase is behind us.

Capital expenditures in Cable will continue to support growth, expand our enterprise business, maintain a world-class network and increase our footprint. Finally, on Slide 17, you can see that during 2019, Televisa's main sustainability efforts continue to be recognized around the world.

For example, the company was selected for multiple Dow Jones and [indiscernible] indices. Sustainability is a high priority to Televisa and a key component in the formulation of its business strategy.

In closing, with the progress made in our core businesses and the difficult comps behind us, Bernardo and I believe we have a very solid footing for 2020.

In the year ahead, we will continue to focus on the key strategic priorities of the company, which include the growth in the broadband operations, the turnaround of our advertising sales business and focusing on Sky. For Bernardo and I, the most important thing for 2020 is to focus on execution.

Thank you for your attention, and now we are ready for your questions..

Thank you. [Operator Instructions] And the first question will come from the line of Rodrigo Villanueva from Bank of America. You may begin..

Thank you. Good morning Alfonso and team. My first question is related to Cable. I was wondering that assuming that Televisa is not looking to consider the Mexican cable market anymore, is there any particular strategy to enter new markets across the country that you could share with us? That would be my first question.

And the second question is related to Univision. Over the last couple of quarters, growth has been pretty strong. So I was wondering if you could share with us any guidance on potential royalty for 2020. Thank you..

Hi, Rodrigo. I am sorry. I was answering your question, but I was on mute. As for your first question, we continue expanding the number of customers we have in the markets where our cable already passes. Sometimes, it is difficult to create value by overbuilding. But our ambition has always been to become a national cable company.

So our entry into new markets is an opportunity that we are exploring. As to your second question, that has to do with Univision, we expect that 2020 will be a better year than 2019. They have very good distribution deals in place, which they didn't have last year. As you can remember, we had the dispute with Dish which lasted for many months.

And so now we have the distribution deals in place. And as a matter of fact, as I mentioned and Patricio as well, our content is working very well. We have recaptured leadership on prime time with our revamped productions, which are working. So I think what I can say is 2020 will be a better year for Univision..

Understood. Thank you very much, Alfonso..

Thank you. And our next question will come from the line of Marcelo Santos from JPMorgan. You may begin..

Hi, good morning. First question I had is on the content cost outlook for 2020. Do you believe you have to increase a little bit your expenditures to achieve the goals that you set in the content of the new shows? And the second question is on the Cable CapEx.

The reduction is all – in terms of the upgrade of the network is it already mostly done? Or is there also a reduction in expansion CapEx? So if you could just talk a little bit how the components are changing from year-to-year. Those are the two questions. Thank you..

Hi, Marcelo. We will continue to invest in our content. As you saw, we are having great successes. We feel good and more than good, proud about the new productions and how they're working. As we have reported, we revamped all our productions. We have new storylines. They're – our productions are shorter.

They’re faster paced; they have more action involved in them. So they're working. They're working both in Mexico and working in the United States. As I mentioned before, last night, in Mexico, we had a record-breaking stretch of six back-to-back shows on our flagship channel.

And as Patricio mentioned, 18 of the top most watched programs last year, in Mexico during weekdays, were broadcasted by Televisa. So I think we will continue to invest in our productions. And what I can mention is our goal, even with those investments, is to maintain our EBITDA margin on the Content side. So that's the goal.

As to your second question, it has to do with network upgrades. I will ask Salvi to pick it..

Yes. Thanks. Well, in essence, during 2019, we invested a significant amount of capital in expanding our fiber optics network in the City of Monterrey. So that's behind us. As mentioned earlier, we believe that we will be able to reduce capital expenditures and – but we will continue to invest in supporting growth and expanding our enterprise segment.

So the amount of money that we are allocating this year for expansion is the same that we had last year. The main reduction comes due to the Monterrey investment that we did last year that we do not have to do this year. So it's not that we are cutting on the expansion of our footprint nor on the sale CapEx.

As you know, our network is ready for DOCSIS 3.1. The speeds that are required in the Mexican market have not taken out to the need of pushing harder on DOCSIS 3.1.

That is more expensive than CPEs, than the ones that we are using now, but we believe that we are very well positioned to continue growing with the CapEx that we are guiding for 2020, and that would not mean cutting the expansion of new homes passed that we have for this year..

Perfect..

Yes. Salvi reported – I think, it's important to point out that many years ago we realized this and we started investing first, as we mentioned, in Mexico City, where we took fiber-to-the-curb. And then basically, we did the part of Guadalajara where we have a concession.

And then last year, as Salvi reported, we made investment in the city of Monterrey where we have deployed fiber-to-the-home in all of that city. So that's among other cities where we have taken either fiber-to-the-curb or fiber-to-the-home. For example, the Maya Riviera where – there are many other cities where we have fiber.

So I think we're ready to be able to compete with higher speeds. And of course, Salvi has put together packages with great pricing. So I think we're well-equipped to compete on that front and to gain subscribers..

Perfect. Very clear. Thank you very much..

Thank you. And our next question comes from Alejandro Gallostra from BBVA. You may begin..

Hi. Good morning. Thank you very much for taking my questions. The next question consists of broadband iteration as a symbol of telecom.

From the main cities, basically taking away subscribers from competitors or if they come from rural areas where these subscribers did not have broadband services before, so basically, I would like to understand what is your main strategy here? And the second question is for Salvi.

When it comes to expanding your Cable business, what's the priority? Is it is to lead through cable or through FTTH technology? Thank you..

So, thank you, Sandro, for your questions. I'll ask Alex to take the first one and then Salvi the second one..

Yes. It's a combination of the two. Yes, I'm taking perhaps some possible customers of the existing providers of Internet services. But I do believe that the bulk of the customers of broadband that we have acquired throughout 2019 came from areas where cable companies were not in a position to provide the service..

Now regarding question about expanding our business, well, as we have been saying over time, broadband represents a great opportunity in the Mexican market. Penetration of broadband is low, and 2019 was not a good year in the industry to increase the penetration that the basic requires.

We believe that in 2020, the rate of additions of broadband in the industry and in our company will be higher than in 2019. Regarding the technology to be used, I mean, we have to decide market-by-market.

There are some markets, like Monterrey, that the needs of market and the reconstruction of the network took us to the decision that it was better to go FTTH. There are other markets, with the acquisition of Axtel that we have both the FTTH and we have our HFC infrastructure.

But don't forget that, notwithstanding that FHC, in many cities, we have fiber-to-the-curb. So we are able to deliver high speed, especially with DOCSIS 3.1 where we can deliver 1 gigabit. We have not launched it yet, but the network can do it. So it's not that everything that we are building is FTTH.

Whenever we build a new area, we take the decision and a lot of it depends on the social economic area. When we build FTTH, all the equipment that we require is new equipment while on HFC, we can use the existing equipment that we already have.

I think that, over time, as the cost of deploying FTTH continues to come down, it's more likely we will, on the new buildup, we will go to FTTH. But it's a decision that needs to be taken market-by-market..

Ridiculous. Thank you very much..

Thank you. And our next question comes from the line of Carlos Legarreta from GBM. You may begin..

Hi. Thank you. Good morning. Just to reinforce on CapEx. We have been spending close to $1 billion in the past few years. Is that a number that you can continue go for in 2020? Or I understand there will be a reduction that's unfavorable, is it possible to have that via disclosure from the conference please? Thank you..

Yes. Carlos, I couldn’t hear your question clearly.

Can you repeat it please?.

Sure. Okay. I was trying to ask the CapEx allocation for the full year. I said it was – it's been close to $1 billion for the past two years. I just want to know, at the consolidated level, we should expect a lot of figures given the fact that you have mentioned that Cable capture come out? Thank you..

Yes. I mean, the components are the same as in 2019 except for Cable that is going to have the reduction I talked about..

Okay. Thank you. That’s perfect. And then if I may follow-up, in the Content part, you're looking at OpEx saving for MXN 400 million, can we expect those to remain in a similar level going – I mean, not reduction, but to remain at similar level of OpEx going forward? Thank you..

Sorry. I could not hear your question.

Can you get closer to the phone or the microphone?.

Sorry, I think – I hope that's better. On the Content side, you mentioned you had savings of around MXN 900 million for 2019. I want to know what is your expectation for 2020.

If that can remain not to reduce another MXN 900 million, of course, to [indiscernible]?.

Yes. Our goal, as I mentioned before, is to maintain our margin..

Okay. Thank you. That’s helpful..

Thank you. [Operator Instructions] Our next question comes from the line of Ernesto Gonzalez from Morgan Stanley. You may begin..

Hi. Thank you for talking my question. Could you give us some color on Univision? There have been media reports that there are some parties interested in this asset, so any indication of how we should think on this topic? It's much appreciated. Thanks..

Yes. Hi, Ernesto. This is an ongoing process that is being led by the private equity firms that are our partners. And it's in the final stages, so unfortunately, I cannot talk about it..

Thank you..

Thank you. And I'm not showing any further questions. I'd like to turn the call back to our speakers for any remarks..

Well, thank you very much for participating in our call, and give us a call if you have any additional questions. Bye..

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect. Everyone have a good day..