Good morning, everyone, and welcome to the Grupo Televisa Third Quarter 2016 Conference Call. Before we begin, I’d 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, Executive Vice President of Grupo Televisa. Please go ahead, sir.

Thank you, Arnika. Good morning, everyone, and thanks for joining us today. With me is Jose Baston, President of Television and Content; and Salvi Folch, Chief Financial Officer of Grupo Televisa. Let me start by addressing the macroeconomic environment, which affects all of our businesses. Mexico’s economy has performed relative well in a difficult environment, but the need to strengthen economic fundamentals has increased. The depreciation of the peso to-date has had an impact in our operations particularly in our CapEx given the majority of them are in dollars. Consumption remains relatively strong and continues to be one of the main drivers of growth, but consensus expectations for growth in GDP have been reviewed downwards four times from 3% at the beginning of the year to about 2% to-date. We are very optimistic about Mexico’s prospects over the long run. In the meantime, as most of the other Mexican companies, the performance of all our businesses will largely be influenced by the dynamism of the Mexican economy. Now, moving on to our consolidated results for the quarter, revenues grew by 6.6% and operating segment income grew by 4.1%. Pepe will now discuss the operating results of our content segment and I will follow after with a discussion of Sky, Cable and our other segments and then we will take your questions.

Thank you, Alfonso. During the quarter, revenues in our content segment were relatively flat, while operating segment income margin reached 42%. A number of factors affected our top line growth. Advertising revenues declined by 1.5% in the quarter. For the first nine months of this year, ad revenues are marginally down by 0.7%, compared to a decline of close to 9% over the same period last year. This is double recession of ad revenues is [indiscernible] and it is an important first step in the restructuring of this business. Our plan is to take this business back to a consistent sustainable pace of growth. For the moment, it is still too early for us to have good visibility in terms of the trajectory of revenues. Please keep in mind that 2016 is the first full year under the new pricing structure both in the upfront and this capital market and negotiations have been very intense. From the beginning of the year, clients have indicated to us that they will not be investing more dollars than they did in 2015. Even if that means they will get less volume. Some customers will reach their marketing goals with late exposure on television; while others could finish that shortfall align with additional advertising dollars with us. We will find out during the fourth quarter. The strategy we have implemented has the purpose of changing habits and practices that have been in place in Televisa and in the industry for over 20 years. For that reason, over the last four quarters, we have made several substantial changes in the way which we run this business, in our sales philosophy, in our policies, our procedures and in our management team. These changes are ongoing. We are happy to share that this month [indiscernible] joined as…

Moving onto Sky, third quarter growth was solid at 12.5%. This phase of growth is in line with the growth posted in the 12 consecutive quarters prior to the phase of transition from analog to digital transmission of broadcast signals. To recall, this transition benefitted Sky favorably starting in the third quarter of last year and continued to help through the first quarter of this year. During the third quarter, net additions in Sky were very strong at 123,000 subscribers. Sky has now close to $8 million customers, which is still less than one-fourth of the homes that it has the potential to service. In addition, operating segment income expanded by 8.7% and the margin reached 46%. Sky continues to be one of the most successful pay television providers in the country and the only one capable of providing the full suite of Televisa’s channels to all of Mexico’s 32 million homes. Moving on to cable, during the quarter, we added close to 150,000 RGUs or revenue generating units, reaching 9.7 million RGUs with our voice, video and data offers. As a result, sales increased by about 12%. This growth in operating segment income was even stronger reaching 16% and resulting in a margin of 42.2% in line with our guidance. This is the highest margin on record for this business. The cost reduction plan implemented throughout this year continues to payoff despite the higher cost of some content as a result of the peso depreciation. So far we have complemented the technological upgrade in over two-thirds of our systems and this upgrade is already a strong competitive advantage in an increasingly contested market. As expected, this process has resulted in a disruption in the pace of growth in many of these markets. Looking ahead, starting in 2017 and taking…

[Operator Instructions] Your first question comes from Richard Dineen with UBS.

Thank you. Thanks for taking the question. Good morning, everyone. A couple of questions, if I may. Firstly for Alfonso, have you spoken to AT&T since the Time Warner deal? Do you see any implications there for your relationship, perhaps as future competing content owners as partners in Sky? And maybe to your closing comments there, Alfonso, how do you think this might reflect on Televisa already being a vertically integrated content owner and distributor? And secondly, maybe for Pepe, on the Univision revenue decline, you mentioned the timing issues, but there’s also been a slide in the ratings with Telemundo gaining some ground there. I think there was that Wall Street Journal article, for example, saying that maybe they weren’t happy with the Televisa programming and the PLA. So maybe if you could just talk a little bit about any issue on the ratings, is it content, is it scheduling, and what are you doing to address that with regard to new shows and new formats? So any color there would be fantastic. Thank you, guys.

Hi, Richard. Yeah, to your first question, we have spoken to AT&T, we are very excited and very happy about their deal. I think it’s integrating distribution and content. Televisa, as I mentioned, is a fully integrated company in that sense. We have been doing this for a long time, integrating distribution with content. So it’s the same model. They are very happy with their deal as you could see. And we have a great relationship with AT&T. They have joined the board of Sky and they are contributing a lot to that company. So we are very happy to have them as partners in Sky.

Now, I have told you this that the factors of the drop in sales come from what I mentioned with [indiscernible] compression from last year as well as the money that went away from Univision also the licensing deal that they had that I just mentioned. And what I can say that the reach of Univision and all the offer of advertising has by far the biggest reach of Hispania – on the Hispanic market of the United States. Yes, Telemondo is doing a good job in the produce, but we are in the processes like – they also mentioned to reinvent the way that we produce to concentrate a lot more of our content to satisfy these new trends that were seen in the consumption of the content. What I can tell you that we also have – Univision is by far the [indiscernible] on the offer of any other outlet of advertising in the United States and I can tell you that the work that we are doing together will give better results in audience as well as going forward.

Sorry. Can you maybe just give us any examples of some of the – are you experimenting with new formats, is there something specific with the investment in content surrounding blim that you think can have a positive impact also with Univision to sort of help it get a little – get back in the rating, is that something you could speak to?

Well, sure, yeah. Like I said, we are [indiscernible] some collaboration with Univision to help them to make the best possible use of our content. We are investing, like I said, $100 million, actually it’s about 10% from last year – close to 10% from last year content investment we did with Univision and expanded content offering and we are doing, for example, we are doing our produce for the prime time offer of Univision shorter, faster pace, and we are concentrating a lot of the insights that we are getting from the Hispanic research that we are doing.

Okay. Thank you, Alfonso and thank you, Pepe. Very helpful, as always. Thank you.

Your next question comes from David Joyce with Evercore ISI.

Thank you. I was wondering if you could provide some more color on your subscribe trends with the cable and the satellite. So with Sky, has there been anything meaningfully changing in the Megacable markets given the disruption in…?

Hi, David. Yeah, well, it’s too early to tell, although we are seeing positive signs in some of those markets. There are two markets where Izzi competes against them and there we are seeing positive results as well as in the other markets where Sky competes. So let’s see – I mean it’s a question of waiting and seeing what happens in this quarter. We believe that we will have good results.

And on the cable side, where you’ve been upgrading, have you been capturing any privacies you moved to digital in the upgrade or is there any other disruption as a result of the upgrades and how is that being resolved?

Yeah, there have been disruptions. We have been doing, David, too many things, I think, at the same time. So that has caused a drop in net additions. I think we are going to concentrate fully on churn. And, of course, we are focusing on this disconnects. We have implemented many key strategies as I was mentioning at the same time, this has not been a small effort. For example, we have been launching Izzi as a single unit by the telecom brand across the country and establishing a single customer oriented work culture. As you can remember, we are consolidating five cable companies, which had different brands, different services, different products. We are also unifying and simplifying our service offering. So this is a sharp contrast to the more than 50 different packages and pay television options that were offered by these five cable operations prior to integration. And also as part of this changes and part of this integration, we are deploying a single IT platform and architecture across all areas. And this includes from billing to customer relationship tools to resources planning tools. So this has been pretty tough and has implied a lot of work. And on top of all that we are aligning network technologies and capabilities as well. For example, David, we are going fiber deep in key markets. This is launching fully digital bidirectional video services. We are guaranteeing 10 MiG in our data plans and we are expanding the number of nodes. And this is also at the same time deploying DOCSIS 3.0 compression standards. So we are well into the process of implementing all of these projects and this has been at the same time. So although our financial results are very good, operationally doing all these things at the same time and all these key projects has resulted in some service disruptions and that has driven churn up and that has driven also an increase in the number of disconnects. So now I mean we are focusing all our attention on those issues.

Thank you very much.

Thank you.

Your next question comes from Rodrigo Villanueva with Merrill Lynch.

Thank you. Good morning, Alfonso and Pepe. I have a couple of questions. The first one is related to the new content that you have been producing and transmitting in Mexico. I was wondering there are any metrics that you could share with us regarding the success of the new content? And the second one is related to CapEx, Alfonso, you mentioned that you are planning to reduce CapEx for 2017 and I was wondering if you could quantify your CapEx expectations for next year? Thank you.

As to your second part of the questions, Rodrigo, CapEx, we are working on that. We don’t have a figure yet to share. However, I mean, as I mentioned before, we want to focus 100% on the returns of those investments. So considering the exchange rate, we will reduce CapEx. We are going to – I mean do this in 2017. So basically this is in light of the depreciation of the peso. We will share this very soon but it’s a whole new plan for 2017.

About the sales, we intend to see how they are doing. We are ready to share about some of the shows that we launch. We are very close to understand that the changes that we are making, how are they working and what is that we have to go to. This is very early to call but one thing I can say is that we are taking advantage of all the knowledge that we have along with the new team that came along to try to understand these changes of the market and we are going to be using all the outlets of Televisa to be able to complement the offer from one channel to the other one, and being able to have by far the biggest offer for any other Mexican based media in Mexico.

Understood. Thank you very much. And one last question if I may. You have been talking about this $100 million in order to produce new content. I just want to make sure or get your thoughts on if this $100 million is something that could be recurring going forward? Or you will expect this to be a one-off for this year? Thank you.

It is recurring and moreover keeping to inform although we have been very, very efficient in the use of our resources in all the company. So we are working very hard to keep our cost down as it has always been in our production area and we are always looking on a permanent basis to see those efficiencies seen that the market and reproduce this content.

Perfect. Thank you very much.

Your next question comes from Alejandro Gallostra with BBVA.

Hi, good morning and thank you for taking my question. My first question is related to cable operation and specifically to margins. It seems that they are stabilizing. I know that the –

Sorry, Alejandro, I can’t hear you.

Hi, can you hear me better?

Yes.

Okay, thank you. My first question is related to the cable operation where we are seeing margins are stabilizing. I know that they are in line with your guidance for the year 42% but I’m just wondering if there is still room for improvement here. There are more synergies that you can still extract from integrating to cable operations.

Yes. The margins will remain in that range at around 42%.

Okay. So basically the synergies are always because of the margin pressure.

Yes. And to get there, we implemented a cost reduction plan. We laid off about 1,200 people this year. We exploited a lot of synergies. We are integrating the company. However and that is why the depreciation of the peso effect. So you have that effect on the purchase of programming where in some instances it’s denominated in dollars. Those contracts are denominated in dollars, or denominated dollars with hedges. On the internet side of the business, those are dollar denominated payment. So although we suffered the denomination was a peso and that of course affected costs associated or denominated in dollars, that’s one part of our cost structure. On the other side, we had a huge synergy plan and a huge cost reduction plan which we fully implemented. So that’s why we believe that it’s a great margin for this type of operation considering the evaluation of the pesos I mentioned and we believe that this is sustainable in this type of percentages.

Okay, great. Thank you. And my second question is related to leverage which it seems keeps going up. And given the still low growth in the advertising business which is the main [indiscernible] you mentioned that you want to lower [indiscernible] in Mexican pesos or still the Mexican pesos is very much depreciated. I am just wondering what’s the leverage level that you’re comfortable with or if you will be able to depreciate next year or when you wanted to depreciate it.

Our current level we believe to the right level. We are not planning to increase it and there are the – if you see the main effect has been FX. So it has to do with the depreciation of the peso. So of course in peso terms that is higher but that has been the effect.

Okay. Thank you very much.

Your next question comes from Soomit Datta with New Street Research.

Hi, two or three questions please. On the CapEx for next year, could you maybe give a sense as to what CapEx is being saved maybe just talk around that subject, what kind of CapEx were you planning on spending but you’re not going to the geographic, what kind of upgrades that you’re referring to exactly and is that simply being deferred or is that some CapEx which can be absolutely saved and that’s the first question please. And secondly, on EBITDA that were in the other expenditures line, two or three one offs mentioned in the press release. Could you perhaps quantify those to be reasonably material if you could put some numbers on to that, and that would be helpful. And then thirdly, just on the $100 million of extra spending in content this year, how much of that has been spent in the first nine months that you’re on track broadly to hit that for the full year that would be helpful. Thank you.

Hi, Sumit. As to CapEx for 2017, it’s basically we are focusing on target in terms of returns on the investment. So in essence we are slowing down the pace of deployment of network upgrades in the remaining markets. That’s basically where we are focusing our attention in terms of reducing CapEx for 2017. Now, I’ll ask Salvi to answer questions in one has to do with other expenses.

Yes. In terms of quantifying what’s the composition of the other expenses line, close to one third of the amount is explained by the cancellation of the satellite in sky. The FX depreciation basically made us Televisa and AT&T to take the decision to cancel that satellite and that is the one-time impact, so that’s third. Another third is explained by expenses related to legal and accounting advisory services, most of which are not recorded. But as you are aware, we have some legal expenses during this year. And the remaining third, most of it is the disposition of assets of cable as we upgrade our networks. Some of the older networks are disposed and that basically how we guided the other expense line.

Okay.

So the $100 million investment, for this year, we’re going to be working with 75% to 80% of that quantity. We have preproduction process where you’re only lining on going to different research to be able to keep the actual reproduction going forward. So this year we only are going to be using that and make sure we’ll keep going with some more that has already started this year. The short answer will be between 75% to 80% of the $100 million.

Great. Thank you.

Your next question comes from Carlos de Legarreta with GBM.

Thank you. Good morning. My question is regarding paytv pricing both in cable and Sky. So according to official [indiscernible] it seems like the industry has been able to raise prices above average, not a lot but a little bit since at least March. And I would like to know if the average price increases you are having in both of the divisions are in line with that? I’m thinking it should be around 2% to 3% year-over-year but I would like to be more clear on that. Thank you.

Yes. Thank you Carlos for your question. We have increased the prices of our lower tier package on the sky side. This is better from 169 pesos to 185 pesos and cable has raised prices about 4% of course as a result of – as I explained before, it’s a result of the depreciation of the peso and as a result of our target returns on investment. We are looking at possibility of increasing prices in several of our products of sky and cable going forward.

Okay, that’s very clear. And a follow-up if I may, [indiscernible] about the government cuts and why [indiscernible] government network operation for next year. I mean not to maybe ask about a guidance, I know the sale which are big - the government provider.

No, I didn’t get your question, I’m sorry Carlos.

Sorry, sorry. So the government has announced big budget cuts and I would like to understand that has any effect on the sales and government network operations for next year.

No, the agreement that they still have are firm. So of course the services that we provide and therefore those would not be affected.

Okay. Thank you very much.

[Operator Instructions] Your next question comes from Michel Morin with Morgan Stanley.

Hi, it’s Michel Morin. Good morning everyone. I just wanted two things, the first is on the deposits and your advertising revenues during the quarter. May be I missed this in the opening remarks but if we look at the deposits, they were down only by about 2 billion pesos but your advertising revenues were 5.4 billion. So it seems to suggest that a lot of your sales this quarter came from the scatter market. So I just wanted to confirm that or possibly are you already seeing some activity in terms of booking upfront deposits related to 2017 that might have contributed to your revenues this year and might be skewing things. So that’s question number one. And question number two is on cable. I just wanted to clarify a little bit your earlier statement on the outlook for margins because when I look at the last roughly two years, the incremental margins on your incremental revenue is north of 50%. So when I look at that it seems to tell me that your margins have a long runway and that would be consistent with what we’ve seen in the U.S. So if you could clarify kind of taking a longer term view, is that fair to assume that there is still a long runway to margins in cable? Thank you.

Going to the second part of your question Michel, I think you’re right, however we have a big affecting, it has to do with exchange rate. As I was mentioning all the international - services that have to do with the international part of the business such as internet connections are dollar denominated and a lot of the programming deals that we have especially sports deals and deals like that are dollar denominated or foreign currency denominated. And some of those agreements have been hedged in the sense that we share the depreciation of the peso with the programmers. However we continue to have a lot of costs in dollars or dollar denominated or partially hedged, so that has an effect on the cost structure of those companies and will continue to have an effect. So that’s why we have to be conservative in terms of guidance of margins.

You’re right. The deposit was down 2% by the end of the third quarter. Although those deposits do not include only advertising but also order decreases, the actual mix between scatter and [indiscernible] for the third quarter was very similar to every quarter which is a mix of 85%, 50% of sky.

And sorry, just – are you seeing, are you already starting to have discussions for next year upfront?

We are in discussions. As you know, the fourth quarter is a very, very tough quarter because we have the highest of the year, the highest prices and also the negotiations of the opera [ph]. So we are already in close – the most important time of the negotiation with a number of customers, we will not know the overall result until the end of the year. And this moment we cannot share with you the result of the negotiation that have been concluded. What I can tell you that this is the moment where we have to be very, very strong with our strategy to increment the value of our inventory and this is exactly what we are going through right now.

Great. And if I may Alfonso, just following up on your margin answer, is it fair to assume that your cable businesses have already absorbed the content cost increases that your content division is charging, right. So the same kind of issue that mega is facing is reflected in your margin performance this quarter.

That is correct.

Okay, thank you.

Your next question comes from Arturo Langa with Itau BBA.

Hi, good morning. Thank you for taking my question. I have two questions. My first question was on open TV. I was wondering if you are seeing any pressure from the new open TV channel in Mexico and has that diverted a way any advertising budgets away from Televisa. And also if you could share maybe the timeline of the other TV channel? The second one is to be launched maybe next year but that’s pretty – that’s being worked out by the regulator. And my second question is, Alfonso, you mentioned that you’re keeping an eye on the target with reference to cable. Could you share what those target returns are in terms of ROIC may be and how that compares with the other businesses? That would be very helpful. Thank you.

About your first question, it is too early to tell because it has only been basically two weeks. It seems their network started in Mexico, however we see that the new is likely to take some share of the audience and eventually of the advertising dollars. About the order network, there is no much information about what’s going to happen with the other network suppose to be launching next year, we don’t have much information about that.

Arturo, we are not sharing that level of detail at this point in terms of our target returns on investment.

Okay. I understand. Thank you.

Your next question comes from [indiscernible] with BlackRock.

Hi, thanks for the call. Could you give any indication of your intentions to use the local loop on bundling, changes in regulation over the next year and what kind of feedback are you giving to the regulator on this? And then second, in terms of your budget and CapEx planning for next year, what kind of peso, what level of peso are you anticipating for next year?

Thank you for your question. The local loop unbundling we believe to be a great opportunity especially for sky. Given that sky is not a bad directional type of operation, we could offer triple play services using the preponderant operator infrastructure. So a pure example of this is the success that BSkyB has had in the UK where we believe that now sales of many voice and data service assets bigger services. So we’re continuing to evaluate the offer that America did under the regulation. The initial finding shows that the conditions in place do not permit us to offer those services to our subscribers. So we are pursuing the necessary changes with the regulator in order to turn this into a viable opportunity for Televisa. So as you know the permanent operator published the terms and conditions and the offer for the access to its local loop. As to your question, we have made many comments to the regulators and are working with them to show them basically that we have to make this a viable business model for ourselves and for anybody else that wants to use the local loop unbundling. So a number of changes are necessary and we are working with the regulator in this.

Great. And the peso outlook for your budget?

As you know, the exchange rate has been very volatile. The peso is one of the most liquid currencies in the world. So for 2017, we are using market estimates which don’t differ a lot from the ones we used when we prepared our own budget.

Your next question comes from Andre Baggio with JPMorgan.

Hi, good morning everyone. So I have two questions. One is, what do you think it’s going to be the outlook for advertisement next year because this year there was a change in strategy in which we increased the prices. Is anything that shouldn’t be new for next year and – or should we some a similar trend that what we see – we saw in 2016.

I would say, as I told you a little bit ago, we are in the process of negotiation for next year. We have no doubt the best product is available in the advertising market of Mexico. We are going to stick with the strong position of keeping our rate, the way it has improved from last year and we want to keep revaluating the value of our inventory. So we think that this is the right decision to take thinking the medium and long term basis for Televisa. Like I said the reach that Televisa offer has is unique and we have to prove the value. So it is early to call what is going to happen this year because as we speak - the actual negotiation from next year. So we are going to keep strong, we are going to keep our discipline in our rates and we’ll keep you posted.

Thank you. My second question is that there was an earlier question on the cable outlook and the margins. There was a discussion on, your sharing the FX with changes with programmers, and I just wonder if this conflicts with where you share the FX burden with your programmers. They didn’t have – if they don’t expire at some point you’re going to have to increase or your cost was the new level rate which is around 18.5 which we see in the market today as opposed when you negotiate the contract which was lower FX.

You guess, Andre. I think there will be a lot of negotiating going forward because you’re right, in most cases when we sign those agreements the exchange rate was much slower. So it will be a negotiation as it has been in the past. For the time being, we are sharing in most of those agreements, the depreciation of the peso with the programmers and it will be a negotiation when those agreements end.

Okay, perfect. Thanks a lot.

Thank you.

Thank you very much for participating in our call and call us with any questions you may in these days.

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