Good morning, everyone, and welcome to Grupo Televisa's First 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. 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, Elsa. Good morning, everyone, and thanks for joining us today. With me are the heads of our three key business segments: Salvi Folch, CEO of Cable; Alex Penna, CEO of Sky; Patricio Wills, Head of Televisa Studios; and also Carlos Ferreiro and Antonio Lara, Corporate Vice Presidents of Finance and Administration, respectively. Now starting with our financial results for the quarter, consolidated revenues reached MXN 23.4 billion, representing a year-over-year growth of 2.6%. It was a challenging quarter in two of our three core businesses. While Cable revenue continued growing double digits, Sky revenues were down year-over-year. Also in our content division, top line growth was affected by a large decline in government advertising, but also by weaker ad revenue from the private sector due to a slow start from some of our largest clients. In terms of operating segment income on a consolidated basis, it reached MXN 9.4 billion, equivalent to a year-over-year growth of 3%. Let me address the financial results in our Content division before Patricio discusses the progress made in our content strategy. We will follow that with a discussion of our Sky and Cable segments before taking your questions. So moving on to Content, the border was very complicated in that business with advertising revenue falling by 13.8%. The reduction was mainly driven by a substantial decline in government advertising. Private sector advertising revenue was down year-over-year by approximately 2%. As we indicated last quarter, we expect that in 2019, government advertising will drop on a full year basis by about 50%. The new administration is implementing a number of public policy measures to release funds for other initiatives. One of these measures is the reduction from its overall investment in advertising, which they have publicly indicated would come down by approximately 50%.…

Thank you, Alfonso. In terms of content offerings, our programs continued to deliver very solid ratings during the first quarter. In our flagship network, total prime time viewership increased year-over-year by 4.6%, while the audience of the two broadcast competitors dropped. Competition has been intense as we are producing better content. For example, 9 of the top 10 rated programs were produced and submitted by Televisa. Also Televisa submitted 7 of the top 10 soccer matches, 9 of the top 10 movies, and our main newscast delivered twice the audience of our closest competitor. To achieve this, we are implementing the plan set in motion at the beginning of the year. For example, we are allocating a larger portion of our budget for this division to the production of content, therefore, improving our content offer; expanding the number and scope of our co-production's agreement with all important companies; reducing the amount of content on formats purchased by third parties; and strengthening the prime time of Channel 5, our second-largest free-to-air network. We seem to be on the right track, and we will keep on executing this strategy.

Thank you, Patricio. Ratings, in fact, have been great, especially in the first quarter and on prime time on our flagship. Now let me turn it over to Alex Penna, CEO of Sky.

Thank you, Alfonso. Sky posted 251,000 fewer video revenue generating units, or RGUs, during the quarter. This was expected and the result of mostly from prepaid customers that start recharging their Sky service after the completion of the World Cup last year. These customers start earning a revenue from Sky for 7 consecutive months and were due for disconnection. On the broadband side, we added an additional 73,000 RGUs during the quarter, reaching 165,000 broadband RGUs. In the aggregate for the two services, we closed the quarter with approximately 7.6 million RGUs. Year-over-year, revenues were down 3.5% during the quarter, but operating segment income margin remained strong at close to 44%. This was achieved in spite of the cost associated with the launch and promotion of our broadband service. Sky continues to be a very important cash flow contributor to Grupo Televisa. Operating segment income net of capital expenditures was north of MXN 1.4 billion during the quarter.

Thank you, Alex. Now moving on to Cable, let me turn it over to Salvi.

Thank you, Alfonso. The Cable division posted solid growth of 14.2% in revenue and 17.3% in operating segment income year-over-year. Revenue in our MSO business, which accounts for almost 90% of revenue in the Cable division, posted an even faster growth of 15.4%. At the same time, our enterprise business posted its third consecutive quarter of growth after its restructuring in 2018. The business maintained great momentum. We reached a milestone of 12 million RGUs after adding close to 285,000 during the quarter. Growth in RGUs continued to be strong as a result of both solid gross additions and low churn. Broadband generates the strongest profit contribution to us, so we continue to place emphasis on selling this service. We already have more broadband RGUs than video RGUs. Our market share on fixed broadband grew during the quarter and currently stands at 24.2%. Having said that, we have been also very successful at upselling voice services. Video RGUs were practically flat, so we are taking several steps to strengthen our offering. For example, at the end of March, we included Netflix in our Izzi TV interface, allowing our customers to watch it on any TV set. Starting April, we are including izzi go, our TV Everywhere app, in all our pay TV offers. Also we recently included Real Madrid TV in our channel lineup to improve our sports content offer. The number of services per household remains below industry average, so we continue converting many of our existing customers to double- and triple-play service, resulting in a continuous increase in our load factor. Also our TV Everywhere platform continues to grow. It is working great as an aggregator of third-party platforms, such as that of HBO, Blim and FOX Premium, in addition to Televisa's extensive library of content. Finally, on the infrastructure front, we're making very good progress with the deployment of fiber-to-the-home in select areas. With this, we continue to expand the number of home stack and the quality of our network.

Thank you, Salvi. Moving on to other matters. I'm pleased to confirm that our shareholder's meeting approved yesterday the payment of our regular dividend. Finally, our capital expenditures for the quarter were $223 million, of which $170 million were incurred by our Cable division. For the full year, we're also maintaining our guidance of approximately $1 billion. As you can tell, it has been a challenging start of the year for our Content business and for Sky. At the same time, Cable has continued to expand at a solid pace and remains on track to grow double digits for the full year. As to the second quarter, it will also present us with some difficult year-over-year comparisons mainly due to our transmission of the World Cup in 2018. For example, advertising revenue growth was unusually high in the second quarter last year given that some advertising budgets concentrated in such quarter due to our transmission of the World Cup. Also during the second quarter last year, our Content business benefited from the nonrecurring revenue that originated in the sublicensing of certain broadcast and digital rights of the World Cup. And finally, in the case of Sky, this division earned some incremental pay-per-view and installation revenue, being the only platform to carry all the 64 soccer matches. We should also keep in mind that this year, the Easter holiday took place in the month of April rather than in March, like the year before, and our advertising clients technically reduced their investments during the holidays. Having said that, Bernardo and I believe that the trend should improve in the second half of the year. Governmental advertising should accelerate. Private sector advertising should benefit from having more clarity in terms of the macroenvironment. And Sky should grow again in data subscribers and continue building its broadband business. In the meantime, Cable should continue to perform extremely well and contribute with a bigger share of consolidated operating segment income. In the first quarter alone, Cable represented 46% of the total. In closing, Bernardo and I will continue to focus on execution and an ongoing transformation of our business and remain fully committed to delivering value for our shareholders. And with that, I'd like to thank you for your attention and take your questions.

[Operator Instructions] And your first question comes from the line of David Joyce from Evercore.

Thank you. If you could please clarify my understanding on the Cable business, it seems like despite the video – slight video losses, ARPUs were still up. And obviously, the broadband and voice was very strong. So the absolute – have you been losing maybe the lower end – lower-tier video subs, while still getting the benefits of the bundle?

Hi, David. Yes I'll ask Salvi to answer your question.

Hi David. Yes, the customers that we have been losing the most are the low-end video customers, right? Also you have to consider that we now have Axtel subscribers. They have a higher ARPU than since they are fiber. There is no doubt that video is the problem that it's facing more challenges. The subscriber losses that we have experienced can be explained. Last year, in the third quarter, it was related to the post World Cup effect and the price increase that we had in July. And where we increased the prices at the highest percentage was on our single-play offers in order, really, to promote the bundling. The video subscriber losses that we experienced during the first quarter this year that were very low, was 9,000. They were concentrated on the low-end single play and they basically are biased towards economic reasons. But as I pointed out, we have to improve the attractiveness of our video offering, and we are taking several steps. In March, we integrated Netflix on the setup box and it's very attractive for many of our customers to be able to watch Netflix on the other TV sets. Starting April, we're giving access to izzi go to all our video customer base. Before that we were only giving access to a higher end. But now we're giving it to all the customer base. We launched the sports network Real Madrid TV to improve the sports offer. Blim is now included on our highest priced pay-TV offers and it's very attractive for many of our customers. And we have exclusive football matches in our aficionados' network, that is our dedicated sports channel. I do pointed out, bundling is helping us. As you can see in the recent quarters, we have increased substantially telephony RGUs. And I think that we will continue to see an increase in the load factor and in the ARPU per customer.

Okay. That's helpful. And on the capital expenditure side, how much of that has been variable CapEx related to the new subscriber additions versus maybe any integrations or upgrades that you're still doing – that you plan to do as part of the $1 billion of guidance for this year? Thank you.

Look, in terms of CapEx, our CapEx was higher this quarter than last year. And that was explained by two things. First, we're making quick progress on our fiber-to-the-home strategy. Also in order to reduce foreign exchange risk, we acquired affront certain materials and equipment for the new compass that we build throughout 2019. Our CapEx as a percentage of revenue and as a percentage of EBITDA has been coming down. The trend will continue, and a very high portion of the CapEx is related to the expansion that we are having.

Okay, thank you very much.

Your next question comes from the line of Rodrigo Villanueva from Bank of America Merrill Lynch.

Thank you. Good morning Alfonso and team. My first question is related to advertising, with the first quarter behind us and with more color on how the private sector and the government are performing regarding advertising spending, could you please help us quantify the potential advertising revenue probably decline for the full year? That would be my first question. And then secondly, following a very strong quarter for net additions at Blue Telecomm, could you please share with us your target for the full year? Thank you.

Hi, Rodrigo. Yes, as to your first question, well, we cannot give guidance as to advertising revenue for the second quarter and the rest of 2019 basically due to the lack of visibility. But what I can tell you is that government advertising spend should accelerate in the coming months for it to amount to about 50% reduction from 2018. This is what the administration has stated. On the private sector side, it will very much depend on the macroeconomic environment. We have a solid footing, I would say, with our 2019 upfront negotiations where deposits reached, as you might remember, MXN 16.4 billion, which is basically flat when compared to 2018. The balance will come from the scattered market. And I guess the scatter market will be a function of the macroenvironment and what happens to GDP growth. So as I mentioned before, we believe our target sector customers are being cautious due to the uncertain macroenvironment and recent reductions of GDP growth forecasts. So this is what has affected advertising spend across every platform. And we believe that depending on that is how the scatter market will behave. As to your second question, I'll ask Alex to answer.

Thank you, Alfonso. Yes, Rodrigo, as you saw, we ended up this quarter with gross active subscribers, or RGUs, of broadband of about 165,000. And our expectation for this year is to close the year with RGUs or gross active subscribers of several hundred thousand.

Yes, so before we move to another question, we have to keep in mind, as I mentioned a little while ago that, of course, the second quarter will be affected by our transmission of the World Cup in the second quarter of 2018. The World Cup has two basic components: first, the nonrecurring sale of rights to the World Cup in Latin American territories. That, as I mentioned, it's nonrecurring that contributed with MXN 1.7 billion in revenues and about MXN 820 million in operating segment income. And second, the sale of advertising in the matches and the programs produced around the World Cup. So that, of course, is nonrecurring and it will affect the second – the comparison with the second quarter.

And your next question comes from the line of Gordon Lee from BTG.

Hi, good morning. Thank you very much for the call. Two quick questions. The first, on the other businesses line, that's now, for two quarters in the row, shown growth of a pretty good clip. But this particular quarter, we also saw a very significant expansion in EBITDA margin. You mentioned in the press release that it has to do with soccer gaming and with film distribution, but I was wondering if the numbers that we've seen are sustainable and if there was a one-off in the margin this quarter. And then the second question just on Cable. Salvi, I was wondering if the – if you expect the strengthening of the channel lineup to have a perceptible impact on margins or do you think that, that it can be offset by continued growth in voice and data.

Hi Gordon. Yes, as to your first question, it has to do with other businesses. Gaming is performing well and that's quite a stable business. However, on the other side, soccer and film distribution are always variable and cyclical. And soccer depends on the sale of players, mostly, and as to which of the teams make it to the semi-finals, finals, et cetera. And some distribution depends every quarter on the releases of movies. So those are cyclical and variable. As to your second question, I'll ask Salvi to answer it.

Yes, hi Gordon. Well, the strengthening of our channel lineup brings additional cost. However, at the same time, the broadband and telephony have higher margins than pay TV, so that would be offset. And we are in line to maintain financial discipline and be able to maintain similar margins to what we posted last year, notwithstanding that we are investing a bit more on the channel lineup.

Very clear, thank you very much.

And your next question comes from the line of Andre Baggio from JPMorgan.

Good morning everyone. So I want to try to discern a little bit more in terms of this government spending. Could you tell us what has been the evolution of this government spending in advertising in the previous years? So has it been increasing over time? And then it peaked last year and now we should expect to go to more like at a historical average? Or has it been, more or less, stable in the last few years?

Hi, Andre. It varies year-over-year and it depends a lot on whether there are electoral processes going on or not, depending on the at the federal level or local levels and also the governmental entities that also buy advertising. So what I can tell you is that, basically, it represented approximately 11% of our total advertising revenue last year and that's about 2% of consolidated revenue. And as part of what I mentioned of the measures that the government has decided to take, that will drop by a – to about 50% of what it was in 2018.

Perfect. And second, I just want to clarify one regulatory issue. América Móvil has requested pay TV license. In the case that it gets the pay TV license, Televisa is not – it's mandatory that Televisa offer the channels from América Móvil because América Móvil is preponderant company. Is this understanding correct and then it will have to negotiate with you?

That is correct. However, I mean as to that pay television license, we have to keep in mind that, of course, Telmex has a prohibition in its concession that comes from the days in which that company was privatized. So basically, Telmex and the economic group that includes América Móvil being the preponderant operator in telecommunications. And as mandated by the Constitution and by the new law, they can obtain a new concession or provide additional services if they first comply with a number of conditions. And basically, I would say, as a summary that the first one is that we're taking consecutive months, those companies are in compliance with all of their obligations established by its – their current concession titles. And one of those is the effective unbundling of its network. And based on network regulations, we believe that this has not happened. And also our understanding is that only if and after this term certifies that there's effective competition that term is described in the law, and this is effective competition in the telecommunication sector, then América Móvil has the option to obtain that license. And we don't believe that there's effective competition as described in the law in the telecommunications sector yet. I mean it's very easy to see that just because of the concentration in terms of – I mean if you follow any guideline, we do not believe that there's effective competition.

Perfect. Thanks a lot.

And your next question comes from the line of Alejandro Lavin from Citi.

Hi, good morning. Thank you for taking my question. I have the first question on Sky. So what is the margin trajectory that you expect for the rest of the year? I mean we have seen a decline of about 100 basis points year-on-year in the last couple of quarters driven by the expansion in broadband product. But what do you see for the rest of the year also considering the impact of the World Cup last year? Thanks.

Thank you, Alejandro. I'll ask Alex to answer your question.

Thank you, Alfonso. Yes, the impact of the Blue Telecomm or our broadband business in the first quarter was roughly 100 basis points compared to the same quarter of last year. What do we expect for the year in terms of impact? If we pretty much achieve the goals that we have set for ourselves on the Blue Telecomm business, the impact for margins could be around 300 basis points.

Okay. That's very clear. Thanks. And if I may, a second question related to acquisition for the outlook for this year. So if there was an opportunity that you would be interested, what kind of asset would you be looking at? And would you have in mind a number in terms of maximum firepower that you could use for this opportunity? Thanks

Yes. Well, we always look at opportunities and analyze transactions that, basically, we believe, maximize value for our shareholders. I think we have the capacity to make up decisions. And it will all depend on value and whether that maximize the value for our shareholders.

Okay. Thank you.

And your next question comes from the line of Maria Azevedo from UBS. And Maria your line is open.

Hi, thank you for the call. Can you please share that is digital strategy? And if you can share your views on Televisa original and co-production opportunities that you have with OTT providers. Thank you.

Hi, Maria, basically, our digital strategy is based on the amount of video that we have. As you know, people are consuming more and more video, and we have huge amounts of very successful video, both library that Televisa has accumulated for many, many years and the – of course, the content that we're producing every day. So our strategies, based on that video, both in placing that video through a windowing type of strategy where, of course, the first window goes to broadcast television and then paid television and Blim, our OTT platform. So it's a windowing strategy based on video. On the digital side, we are on YouTube and most of the platforms. And in all those platforms, in our region and in Mexico, in particular, we're extremely successful in terms of the audiences that we generate based on that content.

Perfect. Thank you very much. And just as a follow-up question. If you can comment on your relationship with Univision. Do you see any room for changes in your PLA agreement? Or do you think that the trends are expected to remain the same? Thank you.

Well, our relationship with Univision is excellent. We believe that the new management at Univision is doing a great job. Of course, we are the largest supplier of content for them. We're working hand-in-hand with them. We have our meetings. Our content team has meetings every month with them. And basically, the relationship has strengthened and is excellent. On the program license agreement side, basically, it's an agreement that is set in stone, so it's an agreement that cannot be changed. And we do not foresee that agreement changing.

Perfect. Thank you very much.

And your next question comes from the line of Soomit Datta from New Street Research.

Hi. A couple of questions, please. One on the advertising business, I think in the past, you've suggested the private sector revenue should be – probably tracking real GDP or that would be the hope going forward. There's been a disconnect in the first quarter, as you mentioned. But is that something that you would still broadly hope to see going forward? Obviously, there's different things happening with the government, which I understand, but just on the private sector, would be interested in that perspective. And then a second question on Sky, please. In terms of the subscribers which have been added to Blue Telecomm and the target is to add, I think, several hundred thousand this year, just curious, where are the subscribers coming from? Are they all new to broadband? Are they coming from Telmex? Any kind of sense as to your breakdown there would be interesting, please. And then just a final one, if I could, just on sort of, again, consolidation in the market. I know we touched on this last year, but thoughts on the tie-up with Megacable or any reason to think that could be something imminent just – that would be helpful. Thank you.

Yes. Thank you, Soomit, for your question. As far as Advertising Sales on the content side is concerned, I would say that, as I mentioned before, this year will be different or challenging as a result of the new administration's decision to reduce their investment in advertising. So as I have mentioned, that will go to around 50% of what they used to invest in advertising. So you – if you compare to '18, there will be a drop of 50%. However, our diversification strategy has worked because government advertising represented approximately 11% of our total advertising revenue last year, and that's about 2% of consolidated sales. So even though it's a very material effect, it will have been much steeper in other years before our diversification. So we believe that on the other side, as I mentioned before, we have the World Cup effect and the components of that, the nonrecurring sales of rights and advertising during the World Cup, so that will affect, very specifically, the second quarter. There was a residual part on the third quarter, but most of it was in the second quarter. So this year, we will have a very difficult comp to last year. However, we continue to believe that television is the most efficient platform for our advertising clients to reach their customers. As you know, assuming the majority of our clients are companies that sell services and non-durable consumer goods, and these companies need the reach and frequency more than anything. And we believe that with the new pricing mechanism that was put in place last year, those advertising clients will have effective targeting opportunities, so that we'll see a reaction or – and you will see a comeback in terms of advertising by those clients in the quarters to come. Of course, it will all depend on GDP growth, in terms of the scatter market and it will all depend on clarity as to basically the public policies that are being implemented in Mexico. Alex, can you take the second question? And Alex, can you take the second question.

Thank you, Alfonso. Yes. So I would like first to state that with Blue Telecomm, we have a very competitive priced single and double-play service in the market. Having said that, yes, we have been able to capture some broadband clients from existing telecom players in the market. But the bulk of it, the bulk of our existing Blue Telecomm subscribers have come from double play with subscribers that didn't have a broadband service before. And most of them come from our prepaid service.

And as to your last question, Soomit, that had to do with the Megacable and consolidation of the cable industry in Mexico, we're now focusing on performance and operation of our own businesses. That's what we're going to do in the following quarters, basically grow in terms of sales, recovering growth on the Sky side and also growing more on the broadband side on cable, that's the priority. And that's basically what we're focusing on in the next quarters.

And this concludes the Q&A session. I will now turn the call back to the panelists for the closing remarks.

We would like to thank everyone for joining us today. As always, feel free to contact us at any time for additional questions. Bye.

This concludes the conference call for today. We thank you for your participation. You may now disconnect.