Promotora de Informaciones SA
MAD:PRS
Promotora de Informaciones SA
MAD:PRS
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Earnings Call Transcript
Earnings Call Recording
Other Earnings Calls
Good morning, everyone. This is Pilar Gil speaking, Head of IR. Welcome to Prisa's First Quarter 2018 Results Conference Call. The results we will discuss are available in our press release issued earlier today and disclosed on our website prisa.com. This conference call is also available via webcast. As in previous results, the figures mentioned in this conference call will refer to adjusted figures, unless otherwise specified. The adjustments aim at eliminating extraordinary one-off impacts in revenues, expenses, amortizations and provision, which are fully detailed on Page #21 of the results note released. The call today will be led by Mr. Manuel Mirat, our CEO; and by Mr. Guillermo de Juanes, our CFO. Following our presentation, we will be happy to take any questions you may have. You may make your questions either by phone in the Q&A session or in the presentation via webcast. These questions will be also answered in the Q&A session. With that, I will now hand it over to our CEO, Manuel.
Thanks, Pilar. Hello to everybody. This is Manuel Mirat speaking. Thanks all of you for attending this conference call. To review the results of the first quarter, let's follow the presentation that we have already shared with you before. If we move to Slide 2, where we have the main operating highlights. First of all, and as a summary, this set of result is completely in line with the company expectation, but I would like to highlight the following. First, the result were negatively affected by FX, basically, for the evolution of currency in Argentina and Brazil. Second, the efficiency plan announced is underway. Total saving for the plan in the period reached EUR 8.5 million. And I will be later on elaborate it on that matter. And third, we have positive cash flow generation in the quarter by EUR 52 million. By business unit, I would like to highlight also that Santillana improved its EBITDA by 2%, excluding FX under new accounting policy that have been take -- placed from the beginning of this year, basically, the IFRS 15. That basically change in the company policy affect only temporarily to the business of learning system, basically, UNO and Compartir, and have had a negative impact in the quarter of EUR 8 million in revenues and EUR 4.6 million in EBITDA. I have to mention that this negative impact will be reversed throughout the year, okay? For the point of view of the campaigns in Education, the overall performance has been as we expected with learning system, and that continue growing.For the point of view of the Radio business, we have improved the operating performance by 27%, supporting basically by the LatAm business, with solid performance in Colombia and Chile, that have increased the revenues in local currency by 13% and 10%, respectively. With regard to Spain, the advertising evolution, as you know, was affected by the Easter holidays. And we will continue to focus on the strong cost of operation over there.For the point of view of the Press, we continue growing in digital. Online advertising are representing already 51% of the advertising. Circulation and traditional advertising, also affected by the Easter holidays, continue to bear -- to be under pressure, in line with the industry trends. And finally, our net profit reached EUR 9.9 million that have been positive.If we move to Slide 3, we have the main operating figures of the group for the period. Total revenues reached EUR 282 million, and EBITDA reached EUR 66 million. In local currency and skewing also the accounting policy that I mentioned to you before, we have revenues that have been maintained stable, with EBITDA growing by 3%. On the bottom left-hand side of the slide, you can see the LatAm contribute positively to the EBITDA evolution, thanks to Santillana radio performance; while Spain contributed negatively, affected again for the Easter holidays. On the right-hand side of the slide, you can see the negative FX impact, both in revenues and EBITDA. And as I explained before, that basically for the rates evolution on Argentina and Brazil.On the Slide 4, you have the key performance indicators on the digital transformation of the group. The company keeps on delivering a strong digital growth. In the period, total transformation revenues increased in local currency by 6% to reach EUR 69 million, and that represent already 22% of the total revenues of the group. It is relevant to point it out Santillana represents 77% of the total; and digital advertising, roughly 20%. The new digital initiative in Santillana, UNO and Compartir, continue to grow in revenues by 8% in local currency. And we have reached already over 1 million student and growing by 8%. Regarding traffic number, we continue evolving positively, reaching 136 million and growing by 30%.Let's move to Slide 5 to review the efficiency plan that is underway. As you all know, we -- in the previous results conference, we announced our efficiency plan for EUR 40 million in the next few year, with the idea of integrating most of them during this year, 2018 and basically focus on media and corporate. During the first quarter of the year, basically all this measure reached a cost control of EUR 8.5 million. And that had been impacted on EBITDA by EUR 6.9 million. We have the basis of these savings, basically, is corporate structure simplification, EUR 3 million; transformation of some operations in Press, EUR 2.4 million; Personnel reduction, EUR 1.2 million; closing of nonprofitable operation, EUR 0.9 million; and other savings, EUR 0.9 million. Be clear that we will continue with the strong focus on this plan and also with further measure to be implemented in the next month.I will hand over now to Guillermo, the Chief Financial Officer, who will explain the detail of the business, the unit operating performance, cash flows and debt evolution. Thanks a lot, and we wait for me to Q&A.
Thank you, Manuel. If we move on to Slide #6, we can see the main operating figures for Santillana. When comparing Santillana results, it is relevant to highlight the following effects, as already mentioned by Manuel: negative FX impact of EUR 33 million in revenues and EUR 17 million in EBITDA; IFRS 15 temporary effect, EUR 8.2 million in revenues and EUR 4.6 million in EBITDA. Q1 2017 had some extraordinary sales that did not occur in Q1 2018. It's one related to institutional sales in Brazil and one related to institutional sales in Argentina that will be booked in this second quarter in 2018. Main highlight is that, excluding the FX and IFRS 15 temporary impact, revenues remained stable, with EBITDA growing by 2%. On Slide 7, we can see Santillana revenues and EBITDA split in the quarter. As you know, Q1 South Area campaigns take place since -- which explains the contribution of those countries in the period being the most relevant ones Brazil, Argentina and Colombia. Private sales represented 89% of total sales in the period, while 27% of revenues are linked to digital initiatives. On Slide 8, we have the detail of the operating performance of the different campaigns, both in euros and at constant currency, excluding IFRS 15 effect. Regarding South Area campaigns, which are the ones that take place in this quarter, these campaigns have behaved as a whole in line with expectations, showing a fall of 4.5% in local currency and excluding IFRS 15. As we mentioned before, this fall is explained by the lack of one extraordinary institutional sales campaign in Brazil and by the delay in an institutional sales campaign in Argentina, which will take place in Q2. North Area campaigns, mainly Spain and Mexico, takes place in second half of the year, as you know, and therefore, figures are not representative in this quarter. UNO performed negatively in the period. We are addressing this worst performance with the launch of a new catalog for the next year in Brazil.Let's move to explain the Radio business on Slide #9. As a whole, the Radio business showed a strong operating performance, with margin improvement driven by cost control measures in Spain and operational leverage in LatAm. Revenues increased by 1% in constant currency, with EBITDA growing by 27%. In the period, Spain represented 68% of total revenues, while its contribution to EBITDA was 60%. On Slide #10, we have the evolution between Spain and Latam Radio. In Spain, total revenues of Radio declined by 4%, mainly explained by the Easter impact and the performance of other revenues which declined as a result of lower services to third parties and lower revenues for brand management. Gross advertising revenues fell by 2.4%, with growth in local advertising of 2% and a fall on national advertising of 7%. Discounting the Easter effect, gross advertising revenues would have remained stable. Margins in Spain remained unstable despite top line decline on the back of strong cost control. In LatAm, total revenues increased by 10.5% in local currencies, supported by a strong performance in both Colombia and Chile; strong margin improvement in LatAm supported by operational leverage and cost control. Let's now review the Press business on Slide #11. Press revenues declined by 9% in the period. The increase in digital advertising and other digital revenues did not offset the decline of both traditional advertising and circulation. Advertising revenues declined by 5%, affected by Easter; 1.5% decline excluding that impact. Online advertising increased its contribution to total revenues representing 24% of total at the moment. Circulation revenues represented 36% (sic) [ 38% ] of total revenues and continued under pressure, with declines of 13.6%. We would like to highlight the strong cost control reduction of 6% in the division. Press adjusted EBITDA reached a negative EUR 0.7 million compared with a positive EUR 0.9 million in the same period last year.On Slide #12, we can see the main digital indicators of the Press division. Digital advertising increased -- increases by 2%, reaching EUR 11 million in the period and representing already 51% of total advertising revenues. El País.com continues increasing its audience worldwide. 42% of total audience figures come from international, still a minor source of revenues. According to comScore, El País is in the position ranking #5 in Spain and in terms of unique users, after Google, YouTube, Facebook and Twitter and before El Mundo. Regarding media worldwide ranking, it is #10, being the first position occupied by Chinese and British and American newspapers; and ranks #1 news site worldwide in Spanish.On Page 13, we have detailed the profit and loss accounts from EBIT to net profit. Net result was EUR 9.9 million positive. And we would like to highlight the lower interest payment in the period of EUR 1.6 million as the main relevant figure to analyzing this in this table. If we now move on to cash flow generation and debt evolution on -- up on Slide #14. On the top side of the slide, we have the operating cash flow generation of the company in the period, which amounted to EUR 51.6 million compared to EUR 10.6 million of the same period the previous year. The main highlights are the following. Working capital in Q1 was positively impacted by the collection in 2018 of EUR 26 million corresponding to 2017 institutional sales campaign in Brazil. Full year 2017 results working capital was negatively impacted by this effect, and we already explained this -- we already explained that this was going to be reversed during the first quarter of 2018. Some temporary effects as a result of Q1 closing during the Easter week will be reversed during the second quarter. Most of capital increase and refinancing expenses will be paid in H2 and have not been booked in Q1. Severance pay during Q1 2018 have been higher compared to the same period last year on the back of the efficiency plan that we are implementing. We would like to reiterate that 2018 will be a year with a slightly positive recurring cash flow generation mainly as a result of Santillana being in a low cycle period both in Brazil and Spain.On the bottom side, we have the evolution of the net debt. Total net debt was reduced to EUR 818 million from EUR 1.4 billion after the cash flow from the capital increase, amounting to EUR 555 million, and the positive operating cash flow for the period. I will now hand it over back to Manuel.
Yes, again, as closing remark, I would like to say the following. This set of results, as I mentioned at the beginning, is completely in line with the company expectations. We will continue on strong focus on the efficiency plan, and further measure will be continued delivering throughout the year. Cash flow generation remains in line with the plan. And we can confirm that the full year 2018 guidance that we provided will be reconfirmed. Now I think we'll have to move to the Q&A session. Okay? Thanks a lot.
[Operator Instructions] You have a few questions that had come through on the audio, and the first question comes from the line of Salik Ishtiaq at Citi.
Just a couple of questions, will be slightly varied. The first one is, is Argentina's contribution then mostly through the Santillana business? And will that -- or are they involved in Radio and Press as well? And then do we -- should we expect the continued impact of Argentinian FX to go into H1, but there shouldn't be any further impact in H2 because the purchasing cycle will complete by H1? So that's the first question. And the second question is, how has Argentina suddenly become such a large portion of the Santillana business? I was just looking at Q4 2017, and there, it seems that Mexico and some others were included but not Argentina. And the third question is, with regards to your results starting from Q4 2017, have you stopped including Media Capital in the results that you're reporting, or can we see them somewhere else in the results? And finally, can you give an update on what the status of the Media Capital sale is, please?
Yes. I will be starting with the Media Capital deal. Basically, what we have done is to extend the contract at this group. It was also contemplated on the contract. Basically, what we are expecting is for the resolution of the antitrust authorities in the coming week. And that's basically the information that we can provide there, that the extension of the contract was already contemplated and just waiting for the antitrust authority that we hope is coming in few weeks.
Okay, sorry, coming back to your -- to the rest of your questions, Salik. Basically, Argentina contribution to the group revenues and EBITDA is mainly Santillana. I mean, we have very small operations in Radio, but basically, the total contribution is Santillana. Regarding the importance of Santillana or the perceived importance of Argentina in Santillana, I mean, as you know, basically, Santillana's 3 key countries are Brazil, Spain and Mexico. And then we will probably grow to the following 4 relevant countries, which are Argentina, Peru, Chile and Colombia. So Argentina has always been a relevant country within Santillana. I'm not sure if during the last quarter, those figures, well, were represented. As you know, Santillana is a South Area campaign, and the importance of Argentina in Santillana is during the last quarter and especially during the first quarter of the year. Regarding FX impacts in -- well, in Argentina, you mentioned, and I would say in Brazil, unfortunately, we cannot control how FX is going to keep evolving. The reality is that what we've seen is that during this first quarter, the main impact has come, when compared to last year, from Argentina and Brazil. And finally, regarding Media Capital, we would say that, as you know, since we announced the board approved disposal of Media Capital, Media Capital shows in our result as a discontinued operations. And that's why we are not showing it now as a -- in the consolidated figures. In any case, we can basically tell you that the performance of Media Capital is doing well. And during the first quarter, advertising went up 4% as compared Q1 '18 with Q1 '17.
Okay. Just a follow-up question, if you may. So with regards to Argentina. If the impact -- if it's a Southern Area campaign, and it comes in Q4 and Q1, does that mean that the impact from their FX would be -- should be limited to the results of Q1?
No.
Or should we see a knock-on effect there -- continued effect of the Argentinian FX impact in Q2 onwards?
No. Q2 onwards, Argentina -- well, as we mentioned, there's still an institutional sales campaign from Argentina that needs to be -- that will be booked during Q2. So in April, basically, that could have an effect in revenues. Now once the campaign is over, the rest of the year, basically, what we're doing is preparing their next year's campaign. So hopefully, I mean, that the impact will be more on the cost side than on the revenue side from here to the start of the campaign in October, November next year -- this year -- end of the year.
Okay. So there will be a cost impact from Argentina, and then there will be a sales and cost impact from Brazil because -- for the rest of the year because, obviously, your private sales have just occurred, but then the public sales will occur in Q3, Q4, correct?
Exactly.
Understood. And then the final thing is, just on Media Capital, I understand that it's a discontinued operation, but I mean, I guess, because your financials are somewhat summarized, I guess I won't be able to see any of that discontinued operations. It's still generating revenue, right, so it should be somewhere. Is it in your cash? Or is it reflected somewhere else in the financials?
Salik, you have the public numbers for Media Capital on their web page, okay? So they made their public statement, and you have the full detail of their profit and loss account on their web page.
Your next question comes from the line of James McKenzie of Fidentiis.
I got a couple of questions. The first, on Slide 5, which is very useful. In terms of the cost savings that you're talking about, here you've got EUR 8.5 million of cost savings. That's on a quarterly basis. So is that to say that the -- these results include, if you like, 85% of the efficiency plan, and there's just 15% left? And then, I mean, making that a sort of obvious comparison across the right of the page, if you look at LatAm time inflation, LatAm inflation, I presume that is mainly Argentina; and that if we were to look at it on a full year basis, the -- if you like, the inflation that we're seeing there in LatAm would not be compensating the efficiency plan gains. I mean, just to sort of make a final clarification on this, I mean, I presume that the efficiency plan savings that you're seeing are in hard currency, and the LatAm inflation is obviously in softer currencies. And then I've got a question on the cash flow on -- for the full year. I don't know -- I mean, obviously, you've had a very good first quarter as a result of the working capital inflows in Brazil. Any thoughts? Maybe we can ignore the campaign in Brazil -- the working capital campaign in Brazil for this year. Any -- could you guide us through what you think the recurrent or the total cash flow might be for this year, ex-working capital, if you like?
Okay, James. Regarding Page #5, so a few questions. The inflation, basically, we have it both in -- on the cost side and on the revenue side, okay? And it's -- on the cost side, this is mainly related, I would say, to personnel expenses in -- not only in Argentina but in most of the LatAm countries we operate, okay. Regarding the efficient plan -- the efficiency plan, basically, this is what's been achieved in the first quarter. As you know, what we've announced is a plan to reduce cost of EUR 40 million in 3 years. And what we have said is that we will be implementing most of those efficiencies and cost reduction during the first 18 months and, hopefully, as much as possible, this year. So the number should be growing throughout the year and definitely, okay?
But the run rate of cost savings is already at EUR 8 million, EUR 8.5 million in the first quarter?
Exactly. Exactly, yes. Okay.
And those cost savings, I mean, I'm not putting words into your mouth here, but those cost savings are mainly hard currency cost savings, and they're not necessarily -- I mean, there's an obvious relation between the EUR 8.2 million and the EUR 8.5 million, the LatAm inflation in the efficiency plan. I presume that these are more Spain-based than Argentina-based.
These are pretty much all Spain-based, okay? And the following question was regarding working capital and cash generation for the year?
Yes.
As we mentioned, I mean, we -- this year, what we foresee is a slightly positive recurring cash flow generation, okay? Our positive cash flow generation, post severance expenses, and it's true that we'll have some one-off effects regarding restructuring succession planning this year, which might make the final cash flow generation slightly negative, okay? So that's how we envisage the year.
Okay. And that's -- I mean, is this -- for example, the EUR 27 million inflow that you see in the first quarter, where do you expect the total working capital might be for the full year?
I mean, we see it around EUR 15 million, EUR 20 million. It will -- but range, it -- as every year, it will depend on the [indiscernible]. We might end up with a EUR 50 million, and we will have to explain it. But I mean, it will be related to EBITDA and public sales.
Maybe you should change a year into January or something but -- yes.
Exactly.
The next question comes from the line of Ivón Leal at BBVA.
Just some questions. Just the first one, just maybe to precise what you just said to James. Working capital of EUR 50 million for full year is positive EUR 50 million. That's right?
No, no, no, an investment of EUR 15 million.
Okay, okay, that's EUR 15 million. Okay, that's clear. The...
EUR 15 million to EUR 20 million.
Okay. The 2 other questions relating to Santillana in Brazil. The first one is, will there be any impact in the market, you think, from recent acquisition of Somos by Kroton? I think Kroton is also involved in the management of schools. So I don't know if that change supposed to be the environment or not.
In my point of view, I mean, I think there's not going to be an impact on the market. As you know, Kroton is basically focused on the university business, and Somos is basically our competitor in K-12. That mean that -- I mean, I think there's going to be probably a view on their decision of school that probably Kroton is on that strategy, and Somos at some schools. That mean that, probably, we'll see changes on the part of the business but not where we are.
Okay, okay. Just the warning that for 2017, like you were expecting a seasonal low demand in Brazil in Santillana this year. Actually, when you look at that -- when I look at your numbers, which is like 4% decline in revenues in the Southern campaign, it doesn't look that dramatic. So I don't know whether it's just been a bit better than you were expecting and, for the fourth quarter, must be a bit weaker? Or this minus 4% is basically what would presume as reasonable for full year Southern countries?
No, basically, when we're saying it's a low paying -- public sales are recorded in the last quarter of the year, so what we're saying is that in 2018, the public sales campaign of Brazil is going to be lower -- significantly lower than the public sale of 2017 because 2017 was a high cycle, and 2018 purchase is a low cycle. So that impact you will really see in the last quarter of the year.
Okay, okay, okay, that's great. And the final one is on Radio in Spain is minus 4% versus the market, which is basically flat. I don't know if you feel you need to invest a bit more there to regain market share. Or is there any plans you can elaborate there in the Radio's -- in the Spanish radio business?
Yes, well, I would like to reiterate that the -- I mean, there's several effects in Radio. One is Easter that makes the comparison, well, not like-for-like with last year. Advertising -- gross advertising revenues, they dropped 2%, 2.5%. And there, we have a combination of a very steady business in local advertising, which is growing; and the national advertising side, which is suffering, as the rest of the national advertising peers, I would say. Definitely, as you also know, we've announced and we're -- we've announced and completed changes in management of the Radio, and we are working to address that part of the business for sure.
Okay. That -- do you think I imply a higher OpEx on that specifical segment?
Not relevant.
Your next question comes from the line of Fernando Cordero, Banco Santander.
I have 3 questions. The first one is related with the performance of EBITDA contribution of the UNO system that is falling year-on-year. And I would like to know or understand this is doing by the implementation of IFRS 15, or this is doing by the increase of falling commercial -- or it increase commercial effort in order to revamp that business line? The second question is related with the gross debt at the end of the quarter. I know that the restructuring agreement -- that restructuring agreement has not been yet fully implemented. So it builds some cash to be -- or that part -- that cash is not recurrent. But I would like to know what is going to be the potential uses? Or in other words, what do you see is the standard recurring level of operating cash in order to understand what would be the cash that you can spend in all the initiatives, even excluding the amount of debt reduction that has to happen at the end of the second quarter? And the third question is related with the management incentive plan. And in that sense, what are your plans on that front? I mean, you have already decided to launch one. What are the key criteria for these plans?
Okay, well, starting with UNO, Fernando, I mean, basically, what we are doing is we've seen some, well, performance below our expectations. And as I mentioned earlier on, what we're doing is revamping the catalog and, hopefully, address this issue. We believe UNO is a very good product. It's 100% digital. As you know, it's a system we have in Brazil, Mexico and Colombia, but where we are seeing it suffering more is in Brazil. And with this revamp in catalog, we hope to address this, well, worse performance than anticipated. Regarding recurrent cash flow, again, here, as we mentioned before, in a year like this one, which is a low cycle year in Santillana, our recurrent cash flow is positive and should be in the line of EUR 25 million, EUR 30 million. Hopefully -- well, not hopefully, I mean, in 2019 and '20, this number will be larger -- significantly larger since we'll be on the back of mid and high years for Santillana. And then we expect that recovery that we expect in Radio. And the last question, I'll hand it over to Manuel.
Yes, basically, on the incentive plan, that it was approved by the General Shareholder Meeting, basically, the plan could reach up to 2% of the company and maximum of 2.5% of the shares. Basically, it will linked to the 50% or to the increase in the value of the shares of the company. And the other 50% will be linked to the evolution of the EBITDA and the cash flow. All this metric will be linked to the strategic plan that we'll present to the board on June. And we hope to -- after that, we'll provide to the market the figures and the link to the incentive plan, okay?
Okay. Just a follow-up on the various cash of the total amount that you have in the balance sheet, we have that the payment to the lenders at the end of the second quarter. That leaves more or less EUR 315 million pro forma basis in the euros. I would like to know, of that, how much do you believe is still required operational cash to maintain the operations?
Well, given the seasonality that we have in Spain, the required cash for the business now is between EUR 80 million and EUR 100 million, okay?
You have a further question from the line of Salik Ishtiaq, Citi.
Apologies. Just to understand then on the total amount of cash on balance sheet that you have, excluding the capital raise, would that include any income that you've received from Media Capital?
No, no, we haven't received anything from Media Capital yet. No, no.
No, no, I mean, in the sales -- not the sale proceeds but like just any dividends upstream for your 95% stake in Media Capital?
No, no, we -- I mean, we sold the company or the agreement with the buyer. Since that date, we haven't received dividends or will be receiving dividends from Media Capital, okay?
Okay. So they're just being held in kind of an escrow and will travel to the buyer then?
Exactly. Well, there have been -- there is an adjustment that will be done at closing, and we will have to see how -- what's the net debt plus all those adjustments customary to these transactions that we've agreed in the SPA, and then we will have the final price, okay, calculation.
There are currently no further questions on the telephone lines.
Okay, so this is the end of the call. Thank you very much for attending the meeting. We'll be happy to answer any further questions you may have. Thank you, and bye-bye.
That does conclude the conference for today. Thank you for participating. You may all disconnect.