Grupo Televisa S.A.B.

Good morning, everyone, and welcome to 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 Celta Folk, CEO of Cable, Alex Pena, CEO of Sky, Patricio Wills, head of Televisa Studios, and our CFO, Carlos Guerrero. 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. 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, with administrative and call center personnel either working from home or rotating in their offices. Our field personnel has continued to work non-stop 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're currently producing six dramas, three realities, and three daily shows. At our San Ángel production facilities, our 16 sets 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 prime time. 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 23.9 billion pesos, and operating segment income was down 1.7%, reaching 10.5 billion pesos. 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 Skype 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 task force which Bernardo and I had to implement and enforce the cost reductions. In the case of our content operation, we are on track to deliver savings of approximately 2.1 billion pesos for the full year when compared to 2019. Along these lines, during the third quarter, content costs and expenses were lowered by 808 million pesos. 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 are 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 of our content to the rest of the world, was around 36% lower as most of our clients continued 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 programs remained very strong, with more than twice the viewers of our closest competitors. On average of the quarter, the year-over-year growth in weekdays' prime-time ratings for our flagship networks was 30%, while the combined growth of all free-to-air networks was 11%. 19 of the top 20 shows watched during the weekdays on free-to-air television were transmitted by Televisa. Our dramas and comedies continue breaking records during the course. For example, the finale of our drama, Te Doy La Vida, was the most watched program for five years across all the past. Also, the last episode of our drama, Rubí, was the most watched program in the 9.30 p.m. Times Law since 2016. In sports, our programming has expanded to cover not only soccer tournaments, but also NBA, NFL, and MLB. In the Mexican Soccer League, all of the scheduled games of this season have taken place, and the ratings have been very strong. In the U.S., the success of our content continues to be a strong rating driver and a key differentiator for Univision. Univision continues to post strong ratings during the third quarter, delivering year-over-year prime-time audience growth with the major English-language broadcast networks and Telemundo-reported audience declines. The Univision Network closed the 2019-2020 season as the fastest-growing family of TV networks with 8% year-over-year growth in primetime ratings. Univision's sister network, Unimax, was the fastest-growing major broadcast network during the 2019-2020 season With double digits, year-over-year audience growth in prime times among all key demographics. Also, Univision has seen the benefits of the return of live events and sports. Live soccer returned in July with a new Liga MX season and the conclusion of the Champions League season in August. In August, during the quarter, Univision continued to see improvements in advertising revenue and stability in distribution revenues.