Grupo Televisa S.A.B.

Good morning, everyone, and welcome to Grupo Televisa's second 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. 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, Elzo. Good morning, everyone, and thanks for joining us today. With me today are Sal Bifold, CEO of Cable, Alex Pena, CEO of Sky, Patricio Wills, Head of Televisa Studios, and Carlos Ferreiro, Antonio Lara, Corporate Vice President of Finance and Administration, respectively. 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, Sally, and Alex. We will then use the time remaining to answer your questions. COVID continues to be a significant disruptor of the Mexican economy and to people's lives. The number of COVID cases in Mexico has continued to grow over the past few weeks, and unfortunately, we do not seem to have reached a peak yet. At the economic level, the impact has been very dramatic. The survey conducted by Mexico's central bank, Banco de Mexico, shows that the expectation is for the economy to contract by 8.8% in 2020. Throughout this period, protecting our people has been our priority. For that reason, we continue to take all necessary measures to protect our employees, such as those in the front lines who are managing our networks and ensuring that people maintain connectivity during this critical time, or those in our content operation who are making sure that people stay informed and entertained. Just as an example, I would like to mention that we visit through Sky and Easy around 18,000 homes every day throughout our country. In this environment, the results on our various businesses have been very different. We have a strong portfolio of complementary best-in-class assets, and this has proven to be an important differentiator. On the positive side, as you can see on slide two, in cable we posted record additions of broadband customers and of total revenue generating units, or RGUs, and double digit top line growth. Sky added both video and broadband customers, posting its fastest pace of top line growth in over three years. In content, our programming was very strong. In Mexico, ratings were the highest of the last five years. In the United States, our content is allowing Univision to lead the industry in ratings growth. On the other hand, in line with the experience of other media and entertainment companies around the world, our ad sales business was substantially impacted by the shutdown of the economy. Also as expected, our other businesses segment was affected by the closure of our gaming sites, the retail outlets where we sell our magazines, the cinemas that showcase the movies we distribute, and by the suspension of sport events. Moving on to slide three, let me now address our consolidated second quarter results. Revenues were down 7.8%, reaching 22.4 billion pesos and operating segment income was down 12.4%, reaching 8.6 billion pesos. During the quarter, we put together a cost reduction plan across the company and the most dramatic measures were implemented in our content division. At the net income level, we reported an increase of 57.5%, mainly due to the decline in financial expenses, mostly coming from the appreciation of the Mexican pesos. Moving on to our balance sheet, we maintain our privileged position of liquidity. As shown on slide four, we close the quarter with a liquid position of close to 55 billion pesos and a net leverage ratio of 2.9 times. I believe that there are very few companies in Mexico that have this type of liquidity. We have no significant maturities until 2024, and the weighted average life of our dollar debt is 20 years and of our peso debt is 7 years. The rating agencies have been supportive of our business strategy and capital structure, and last month, both S&P and Fitch confirmed our investment grades. In their review of Televisa, these two agencies highlighted our strong liquidity position, diversified business model, comfortable debt maturity schedule, and solid credit profile. Moving on to our content segment, on slide seven and eight, let me briefly address the financial results. Revenues were down 16.3%. As expected, due to the overall macroeconomic weakness, which was exacerbated by COVID, advertising revenue was affected the greatest, dropping 33%. The contraction in advertising spent was across the board. On the other hand, network subscription revenue was up 16.1%. This was in part the result of an increase in the price of our paid television networks across all our affiliate distributors. Also, the depreciation of the peso helped, given that a portion of revenues are dollar-denominated. Finally, licensing and syndication revenue dropped marginally by 2.3%. We estimate that Univision's royalty will be down by close to 20% during the quarter to $80 million, partially compensated by the depreciation of the peso. As most other media platforms globally, Univision's advertising revenue will be negatively impacted by COVID during the second quarter. On the other hand, Univision's successful renegotiation last year of key distribution agreements has provided a resilient source of revenue given the increase in subscriber fees. Now let me talk about our cost reduction program. We were very aggressive in doing this and implementing the reduction program in our content division, which resulted in savings of approximately 462 million pesos during the quarter. For the full year, we anticipate that these measures will result in cost and expense savings of between 2.1 and 2.4 billion pesos when compared to 2019. In sum, operating segment income for our content division reached 2.1 billion pesos and the margin was 30.9%. Now, let me turn it over to Patricio, head of Televisa Studios.

Thank you, Alfonso. During the quarter, the production of our newscasts, certain shows, and some sports programming continued uninterrupted throughout the pandemic under strict sanitization.