Good morning, everyone, and welcome to the Grupo Televisa's Third Quarter 2020 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. 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, Victor. 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, Head of Televisa Studios; and our CFO, Carlos Ferreiro. I will start with our consolidated financial results, followed with the financial results in our Content segment.

Then, I will turn it over to Patricio, Salvi, and Alex. We will then use the time remaining to answer your questions. The macroeconomic environment continues to be challenging, and there is still uncertainty, but we're seeing signs of improvement. At Televisa, we are on our way to returning to normal activities.

Cable and Sky have operated at full capacity throughout the year. We have administrative and call center's personnel either working from home or rotating in their offices. Our field personnel has continued to work nonstop under strict sanitary conditions to satisfy the needs of our customers for connectivity.

In our Content division, the production of our newscasts continued uninterrupted, and we resumed full production of non-news content. We are currently producing six dramas, three realities, and three daily shows. At our [indiscernible] production facilities our 16 [indiscernible] are operating at full capacity under strict sanitary conditions.

In spite of the difficult circumstances, Bernardo and I are encouraged by the milestones achieved by our Cable and Sky operations, and the improving trends in our Content division during the quarter. In Cable, we added 448,000 revenue generating units or RGUs, the second-highest pace of organic growth on record.

Year-to-date, Cable has added 1.2 million RGUs, a year-over-year growth of 10.6%. Most importantly, half of the net additions have been in broadband. Sky added video customers for the sixth consecutive quarter and a record 92,000 broadband customers.

With a combined total of 8.1 million RGUs, Sky closed the quarter with the highest number of RGUs on record. In Content, our productions continue to work very well with our audiences both in Mexico and in the United States through Univision. Our flagship network delivered a year-over-year growth in weekday ratings of 30% during primetime.

On the other hand, our Other Businesses segment continued to be significantly affected by the lockup. Our gaming sites, the points of sale of our magazines, our stadium, and the movie theaters were all closed or partially closed. This all relates to COVID, and the impact should reverse as soon as we have a full opening of the economy.

We have already seen that this is starting to happen. Let me now address our consolidated third quarter results. Revenues were down 7.1% reaching MXN 23.9 billion, and operating segment income was down 1.7%, reaching MXN 10.5 billion.

Excluding the results of our Other Businesses segment, which has been materially impacted by COVID, as I mentioned, the combined revenue of our three core operations, Content, Cable, and Sky was relatively flat, and the combined operating segment income was up by 5.3%.

We think this is a great result considering the very difficult circumstances we experienced. As we mentioned in the previous call in response to the impact of COVID, we implemented a comprehensive cost and expense reduction program across our organization.

This was a massive effort by everyone at the company, which meant restructuring a number of areas, renegotiating contracts, and learning to do things differently so that we could protect our margins. We put together a taskforce, which Bernardo and I set, to implement and enforce the cost reductions.

In the case of our Content operation, we are on track to deliver savings of approximately MXN 2.1 billion for the full-year when compared to 2019. Along these lines, during the third quarter, Content costs and expenses were lowered by MXN 808 million.

This made it possible for us to deliver a strong operating segment income growth of 5.9%, and a margin of 41%. In our Cable and Sky operations we also implemented many measures to eliminate redundancies and become leaner and more efficient.

These initiatives allowed us to deliver an operating segment income margin of more than 40% in all three core businesses, Cable, Sky, and Content, and reaching a consolidated operating segment income of almost 41%, the highest since 2016. Moving on to our Content segment let me briefly address the financial results.

Throughout the quarter, our Content business continued to be impacted by COVID, with revenue down 7.2%, which is an improvement when compared to the second quarter. Advertising revenue was down 13%, but substantially better than the drop of 33% in the second quarter.

While government advertising remained weak, we saw a recovery across most categories among our private sector clients. Having said that, some of our clients are still not open for business or are not operating at full capacity, which means that they have reduced their advertising spend substantially. Network subscription revenue was up 7.5%.

As in the prior quarter, this growth was mostly driven by a price increase and to a lesser extent by the 14.7% depreciation of the peso and the portion Other Revenues that the dollar denominated. Finally, licensing and syndication revenue was down by 3.7% when compared to last year.

Univision royalties reached $92 million or 8.1% lower than the same quarter last year, but 15.6% higher than the prior quarter. The balance of this line item mostly exports our content to the rest of the world was around 36% lower as most of our clients continue to deal with a slowdown in their own markets.

Both these effects were partially compensated by the depreciation of the peso. Let me now turn it over to Patricio Wills, Head of Televisa Studios..

Thank you, Alfonso. During the quarter, viewership of our nightly news program remained very strong, with more than twice the viewers of our closest competitor. On average of the quarter this year-over-year growth in this case primetime ratings of also our flagship network was 30%, while the combined growth of all free-to-air networks was 11%.

Also, 19 of the top 20 shows watched during the weekdays on free-to-air television were submitted by Televisa. Our dramas and comedies continued breaking records during the quarter. For example, the finale of our drama, Te Doy La Vida, was the most watched program for five years across [indiscernible].

Also, the last episode of our drama, Rubi, was the most watched program in the 9:30 PM timeslot since 2016. This shows our programming has expanded to provide not only soccer tournaments but also NBA, NFL, and MLB. In the Mexican Soccer League all of the scheduled games of this season have taking place, and the ratings has been very strong.

In the U.S., the success of our content continues to be a strong ratings driver, and a key differentiator for Univision. Univision continued to post the strong ratings during the third quarter, delivering year-over-year primetime audience growth [indiscernible] English language broadcast networks and Telemundo reported audience declines.

The Univision network closed the 2019-2020 season as the fastest growing family of TV network with 8% year-over-year growth in primetime ratings. Univision featured network UniMás was the fastest growing major broadcast network during the 2019 - 2020 season with double digit year-over-year audience growth in primetime among all key demographics.

Also, Univision has seen the benefit of the return of live events and sports like soccer returned in July with a new Liga MX season and the conclusion of the Champions League season in [indiscernible], and now during the quarter, Univision continue to see improvement in advertising revenue and stability in the distribution revenues..

Thank you, Patricio. Before turning it over to Salvi, I would like to mention that we are extremely happy with the relationship we have developed with Wade Davis, the next CEO of Univision and Eric Zinterhofer from Searchlight Capital, who leads the investor group [indiscernible] from Univision from the current progress.

We have a very clear vision for Univision, which Bernard and I share. Over the last few months, Univision has made significant progress on many fronts. They undertook a massive cost and expense reduction plan very similar to ours. They renewed their affiliation agreements with six of the top seven paid television distributors.

They also entered into a series of refinancing transactions to extend the maturity profile, and made many program changes that have allowed them to make better use of our content and deliver ratings growth and regain leadership.

We are ready to implement together with Eric and Wade a series of transformational initiatives as soon as the transaction closes. You will see very soon a very different Univision. Now, let me turn it over to Salvi Folch, CEO of Cable..

Thank you, Alfonso. During the third quarter, we were able to deliver strong operating and financial results. Total RGUs use reached 13.9 million after adding 448,000 RGUs. Net broadband additions were 234,000. This is the second fastest pace of growth for a quarter on record.

Data usage among our customers remained strong at close to 300 gigs per months. With improvement investments we have made over time, our solid and reliable network has had the capacity to satisfy this increasing demand.

Social distancing measures have increased demand for broadband services including larger uplink and downlink data requirements for our customer base. DSL is a significant technological disadvantage in this front, especially in uplink speed, and this represents an opportunity for us to continue gaining market share.

According to the telecom regulator, approximately 35% of existing broadband customers in Mexico are still connected via DSL. This continues to present us with a valuable pool of potential broadband customer. In the quarter, we continued to gain market share in a growing market, which is great news.

We also continued adding voice services at a solid pace with 189,000 new customers in the quarter. As it happens with broadband, we continue to gain market share. In video, the number of our videos remained flat at around 4.3 million. There is no doubt that video is the service that has faced more headwind.

We continue to work on strengthening our OTT offer and including relevant sports content. In this front, during the quarter we added additional exclusive matches of the Mexican Football League and weekly NFL game to our [indiscernible] channel. Additionally, we are deploying our new video set-top-box based on Android TV technology.

Out funding strategy continues to deliver great results. Three years ago, less than a third of our customer base was subscribed to a triple play offering. That figure has grown to about 50% of our total customer base at the end of the third quarter. Finally, in Móvil our MVNO service launched last quarter.

We added 26,000 new RGUs during the quarter, reaching 40,000 subscribers. In terms of homes passed, which closed the quarter with approximately 15.7 million. That means that the penetration of our broadband services within our footprint is still low close to 34%. Our financial results were also strong.

Revenue was up 7.9% reaching MXN 11.4 billion, and operating segment income was up 7% reaching MXN 4.8 billion. Within our cable operation revenue in our MSO business grew 6.5%, while our enterprise business growth was strong at 20.6%. Household income in the markets where we operate is under significant pressure.

So far, we have not seen an impact on collections, but it's something that we continue to watch very closely. In our enterprise segment, the acceleration in growth is related to some new contracts with large customers, and it's in line with our plans to consolidate the turnaround of this business.

Our capital expenditures are being driven in large majority by the growth in the number of RGUs and in the number of new customers on the enterprise business. Capital expenditures for our division reached $173 million during the quarter in line with last year.

Giving the acceleration of growth both in the enterprise segment and the higher-than-expected pace of growing in RGUs in our MSO business, we estimate that our capital expenditures for 2020 will be approximately $650 million, which is lower than the CapEx that we have last year..

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

Thank you, Alfonso. During the quarter, we remain very focused on satisfying the needs of our existing and new customers, and these resulted in continued growth in the number of video and broadband customers. Our video subscriber base remained healthy, adding 15,000 during the quarter.

It has now been six consecutive quarters that Sky has added video customers. Collections among our video customer base were strong and those in prepaid plans are recharging their services at a slightly faster pace than before. Our broadband RGUs continued growing steadily, adding 92,000 in the quarter, reaching close to 600,000.

The success of our broadband offer confirms the strength of our brand, the efficacy of our operations and the loyalty of around 7.5 million video customers. As of the third quarter, we closed with the combined 8.1 million video and broadband RGUs, which is the highest on record for Sky. In terms of revenue, it grew 4.9% to MXN 5.6 billion.

This is now the fastest base of revenue growth in 15 quarters. Operating segment income reached MXN 2.4 billion and the margin was 43.5%. Our capital expenditures reached $65 million during the quarter. Given the fast pace of adoption of our broadband offer, our CapEx for 2020 are now estimated to reach $250 million..

Thank you, Alex, great results as well. Moving on we're happy to report that we maintained our strong balance sheet and post a quarter with a liquid position of around MXN 52 billion.

Given the solid performance of Cable and Sky, the improved trends in content and the gradual reopening of the economy, on October 6, we prepaid our revolving credit facility, which we can re-borrow through March of 2022.

Even after prepaying the facility, we continue to maintain a strong position and liquidity of approximately MXN 37 billion, our net leverage ratio of 2.7 times operating segment income and we have no significant maturities until 2024. In terms of our capital expenditures, we believe that we’ll close the year with approximately $950 million.

This figure is higher than our previous guidance but slightly lower than last year. As Salvi and Alex mentioned just now, capital expenditures are being driven almost entirely by growth. In the case of Cable year-to-date, we have added more than 1.2 million RGUs. This is equivalent to a year-over-year growth of 10.6%.

In Skype, year-over-year, we have added 250,000 RGUs. Both of these metrics have exceeded our expectations and are likely to remain strong through the balance of the year.

In closing, in the third quarter, we continue operating in a very tough and uncertain environment, but other one I focused on day to day execution to keep all the businesses running and making sure we delivered on the aggressive and comprehensive cost reduction plan we promised. This was while maintaining morale high.

We saw basically the crisis as an opportunity. We remained absolutely focused on delivering results.

The company continued operating at almost full capacity under the new normal, installing our services from Sky and Cable to an average of 12,000 new customers per day all over the country, translating our newscasts, non-stop and generating entertainment for our audience. Our mantra became execution, execution, execution.

We achieved good operating results. In Cable, as Salvi mentioned, we reached close to 14 million RGUs with RGUs expanding at the second kind of space of organic growth on record. In Sky, as Alex mentioned, we added video customers for the sixth consecutive quarter. In total, video and broadband RGUs reached a new record of 8.1 million.

In content, our programming continued delivering solid ratings growth both in Mexico and in the United States. Our Flagship Network delivered a year-over-year growth in weekday ratings of 30% during primetime. Our content offering is the strongest it has been in over five years.

Our sales team is working with our advertising partners every day to reactivate their investments especially during the Christmas season. On the financial side, Cable, Sky, and Content delivered a combined growth in operating segment income of 5.3% and each of those businesses operated with a margin higher than 40%.

With that, I'd like to turn the call over to the operator to take your questions..

Thank you. [Operator Instructions] And our first question will come from the line of Arturo Langa from Itau BBA. You may begin..

Hi. Good morning, gentlemen. Thank you for taking my questions. I have two, first is, I would love to hear your thoughts on Disney Plus and its arrival in Mexico.

I think it's expected to come into the market around November, but just from a broad perspective, and maybe this is for Salvi, how do you see this, a new competitor coming into the market and the impact, positively or negatively, for the cable business, and then second, in the Content division, the cost savings have been taking ahead of at least my expectations, but I was wondering these cost savings, how permanent they can be, thinking about the MXN 2.4 billion you intend to save this year, and how we should think about that for 2021? Thank you..

Thank you, Arturo. Yes, as to Disney+, and Salvi will expand on that, we cannot basically talk about it because we have signed a confidentiality agreement with Disney. However, it's going to be important for us, and it's going to be a complimentary service for our Cable, for our izzi products.

Salvi, can you expand on that, please?.

Yes, and, thank you, Arturo. Well, what I would say is that the way that people is consuming video, it's changing everywhere, and the pandemic has only accelerated it, but we are very well positioned to be the place where you can watch OTT content regardless of who the provider is.

We are now pretty strong on distribution of Netflix in Mexico, for example. For our customer base it's great that they can watch Netflix on their TV set because for many people Netflix, which is being used on their personal devices rather than on the TV set.

We are very happy with the growth that we have experienced in terms of the use of subscriber VOD, we have Blim, we have Noggin, we have Stars, we have Netflix, we have Disney. It's going to be an additional service that will be offered to the customer base in Mexico.

So rather than just seeing it as a competitor, well there are ways that we can all benefit, including Disney and us, from new entrants in the market, right, because OTTs have been seeing that we can work as a distributor of their own content.

So I think that there's great expectation, but we should see this as an opportunity to become aggregators of content..

Yes, and Arturo, to your second question, we're happy to have exceeded your expectations in terms of the cost and expense reduction program. We have been really focused on delivering what we promised. We committed to MXN 2.1 billion on the Content side, and we will get there. As to next year, we're finalizing our 2021 budget right now.

There are costs and expenses that were permanently eliminated as part of the reduction effort. However, there are areas that we're focusing on, as sports and entertainment. We didn’t have cost related to those as sports events were cancelled this year, and we used reruns in our library even on primetime on our flagship.

Next year, we will hopefully have all the sports events back on a regular basis, including the Olympic Games. We will also be producing more than this year, especially for our primetime and for Univision. So specifically as to those two, sports and entertainment, our costs will look more like 2019 than this 2020.

However, I mean as I mentioned, there are many things that we have eliminated on a permanent basis..

Great, thank you very much, I appreciate your answers. Thank you..

And our next question will come from line of Rodrigo Villanueva from Bank of America. You may begin..

Thank you. Good morning. My questions are related to Cable.

First, I was wondering if considering the solid demand for internet services that you have experienced, are you expecting to raise this in the near future, and the second question is related to basically your updated thoughts with respect to the potential to see further consolidation of the cable market in Mexico. Thank you..

Here, Rodrigo, Salvi will answer the first question..

Yes, [technical difficulty] Rodrigo, we did increase prices. We increased prices September 1 of this year, the same that last year. You're right, at the beginning of the year and with the pandemic, we were not sure if we were going to be able to increase prices, but the business has been pretty resilient, especially on the broadband side.

Customers have been looking for cheaper packages, right, because their household income has declined, but that's why it's important to compensate on the ARPU with the price increase. So, within the industry, I think that we were the first one that decided to do it. Now, [indiscernible] have announced that they will increase prices.

I don’t know about the -- about what the others will be doing, but yes, we did increase prices on our different packages, on average on about 5%, but it's for those that do -- when you buy a package your price is fixed for the first 12 months, so this does not apply to many of the new customers, but we did increase prices..

[Technical difficulty] I think basically you can accomplish that through consolidation or [overbuilding] [ph]. We have those paths going forward, so that's our aspiration, that's our goal. It makes a lot of sense to have a national presence from the synergies perspective of operating nationally, the whole territory, having a single brand, et cetera.

So we will continue that path via consolidation or via building in areas where we don’t operate..

Understood, Alfonso, thank you very much; very clear..

Thank you. Our next question will come from the line of John Belton from Evercore. You may begin. John, your line is open..

I guess his question might have been answered..

All right, and our next question will come from the line of Marcelo Santos from JPMorgan. You may begin..

Hi, good morning. Good morning, thanks for taking the question, there's actually two. The first is you were discussing the changing way that people consume video. So could you make some comments on how do you see the video penetration going forward since using are going more to OTT.

Do you think there is room for further expansion, what's the timeframe that we could see, so any comments on there would be very good, and the second question is with the strategy for the upfront season, so last year the upfront was delayed and it was coincided more in the first quarter.

Should we see more a normalization this year or because of COVID should also be a delay, the upfront? Any comment there would also be helpful. Thank you..

Thank you, Marcelo. I'll ask both Salvi and Alex to take your question about video and video penetration. Please go ahead..

Well, thank you, Marcelo.

Well, what I think is that the video -- the programming of the linear channels in the Mexican market is pretty strong, especially over-the-air channels, as you are aware, Televisa has a lot of relevant content that people want to watch, and it's not only watching it linear as it is transmitted, but with the new ways of watching it out of home or with the new rights, where they can pause or watch the program whenever they want.

I think that what is compelling for customers is to be able to watch both linear channels and a strong OTT or VOD offer available for them to see on any device, anywhere, at any time. The cost of video packages in Mexico is relatively low compared to other markets.

So that's why what we see is that video remains pretty compelling, and for those that want to consume video on demand, anyway they need a broadband connection, so the triple play offer becomes very attractive or double play with Sky that it's also billing for many of the customers.

So, I think that penetration of video, yes, it's facing more headwinds than the other services than especially broadband, but anyway I think that we continue to have a very appealing and strong product..

Okay --.

And just to compliment a little bit what Salvi just said, in the case of Sky, people can get a better, rich prepaid pay TV offer with roughly 80 channels for only MXN 209, or less than $10 per month. It's very inexpensive entertainment for the whole family.

This offer is very compelling, and this explains why it accounts for the majority of our customer base. Also, we made very easy for our customers to skip a payment if they cannot afford the package in a particular month. On average, our customers recharge their prepaid service about 70% of the time.

So comparing our video offer with the cost of the most popular OTT package in Mexico, which range from $7 to $9 per month, and you also need a solid broadband connection. So, OTT alternatives do not have a material price advantage over our pay TV offer. That's why I believe there is still potential for continue growing our video subscriber base..

Thank you, Alex. As to your second question, Marcelo, for 2020, we have indeed a delayed upfront. [Technical difficulty] -- very competitive negotiations with the largest client -- well, all clients.

We accomplished a lot of things which got distorted because of COVID and what has been going on this year, but in general, I was say that in that -- in those very complicated negotiations we accomplished increasing prices.

We took all the clients to a CPM buying model, which I mean you might be surprised by, but some clients, and including large ones, were not buying on a CPM basis, and we also reduced the targets. We had many, many targets, and it was unmanageable. So that was also a tough negotiation.

So, because of the still uncertain environment we're leaving and I guess that we're living in we launched the upfront last week. So for 2021, you will see a more normalized upfront taking place this year, and it will also be a simpler proposal to our customers, a simpler upfront..

Perfect. Thanks a lot for all the answers..

Thank you. Our next question will come from the line of Carlos Legarreta from GBM. You may begin..

Hi, thank you. Thank you for taking the questions. There are actually two. The first one on Cable; so Salvi, your main competitor will be focusing on increasing its fiber footprint, focusing on basically having half of their homes pass with fiber. So, all of the 15 or so homes pass that izzi has, how many of those are rich with fiber? Thank you..

Yes, thank you. Thank you, Carlos, for your questions. Rich with fiber except 10% overall are homes passed. However, I don't think that the right way of looking at it is just looking at what it treats with fiber, because if we go fiber to the node, or fiber deep, then it's what we have, then, we're at about 60% of our footprint with fiber deep.

The technology that we use with DOCSIS 3.01, most of the network being ready for DOCSIS 3.1 allows us to have a good network to be very competitive. One of the main challenges on our market is that ARPUs are low compared to other markets. So, in order to have a good return on investment, we need to charge additional for higher speeds.

So, even in the areas where we have fibers, the articles and the demand of customers is very price sensitive. So, the most sold product is usually among the cheapest offers. So, we’re well-prepared to compete with the technology.

There's going to be additional deployments of fiber coming both from the Content and from other players that are deploying fibers, but we knew that this was coming, and over time we have prepared and made the investments, and we think that we have good problems to compete and any of the places where we are, we need to make changes in investments, reconstructions of the network.

Well, that's what we have been doing overtime to compete frontally..

Okay, thanks.

So basically, with the current levels of capital, you feel comfortable?.

Yes, I mean DOCSIS 3.1 terminal equipment costs, I would say about 80% more than the terminal equipment of DOCSIS 3.0, but DOCSIS 3.0 allows us to give speeds of 200 Megs with no problems.

If we want to move to speeds higher than that, we would simply change the terminal equipment, and then we will have to decide if there is an installation costs to help us pay for the additional tactics that it requires, but we feel that with the tactics that we have, we will be able to continue being very competitive..

That's very clear. Thank you, and if I maybe follow-up on content, I don't know if Alfonso or Patricio, I read something on the press about re-launch of the content strategy for Blim, the online distribution, if you could talk about a little bit of that maybe..

Yes, thank you. Thank you, Carlos for your question. In the case of Blim, we have a hybrid direct-to-consumer platform. We have both direct consumers and also customers carried by both Sky and izzi in their television everywhere apps.

It has a VOD offering of 41,000 assets and 35 live television channels including our Sports Network, and also kids programming, and that has allowed us to offer an appeal to the entire family and Televisa has the largest library of content in the world in Spanish, I would say we have more than 200,000 programming assets.

So much of this content will continue to be added to our platform over time. So, one of the advantages that Televisa has been a fully integrated media company is that we have access to all content windows. So, we prioritize those windows where we monetize our content more effectively.

At this moment particularly in Mexico, I would say that the platform continues to be free-to-air television, but we are seeing -- I mean the trends, and we will be migrating to digital in the near future as the market requires. Blim TV is very well positioned to capture viewers as the adoption of OTT develops a critical mass among our viewer base.

We will follow our viewers and migrate as I was saying our key content to this platform when it makes sense. Blim is getting good traction, and we’ll keep making adjustments to strategy as the market demands us. I can say that during the last quarter we had very exciting results.

The number of users who viewed content on Blim TV grew year-over-year over 400%, and registered users signing up for the free trial are up 64%. So, year-over-year, we saw the corresponding impact on our overall subscriber numbers.

So, today we have over a million users, and we are working on our AVOD offer which we hope will continue to accelerate the pace of growth. We will be announcing our AVOD offer through Blim TV in the early part of 2021. We have seen very strong demand of our content on social media platform.

For example, in a single month the number of views of our content in Facebook and YouTube exceeds 4 billion views. So, this only shows that we have great appetite for our content, and this is a key indicator for us and why we believe that we can monetize this content more effectively to enable products..

Thanks for the comments..

Thank you and I am not showing any further questions at this time, I would like to turn the call back over to Alfonso for any closing remarks..

Yes, well, this concludes our call today. Thank you for joining us. If you have any follow-up questions, please contact our Investor Relations team and thank you again. Have a nice day and stay safe..

Ladies and gentlemen, this concludes today’s conference call. Thank you for participating. You may now disconnect..