Good morning, everyone, and welcome to the Grupo Televisa's First 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, Eltita. Good morning, everyone, and thanks for joining us today. With me, either present here at our offices or remotely, 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 President of Finance and Administration respectively. Let me start with the obvious. I hope that you and your loved ones are safe and healthy in these very challenging times. I will now walk you through the steps we have taken in response to COVID on a company-wide basis, then I will address our first quarter financial results and turn it over to Salvi, Alex, and Patricio for their review of key operating metrics and the measures they have taken to protect our people and our businesses. Before taking your questions, I will close by discussing the recent announcement of the sale of Univision and our outlook under this very challenging macroeconomic environment. Starting with COVID and its impact in Mexico, the first case was reported on February 29. On March 18, Mexico established a social distancing program which is now in effect until May 30. Last week, on April 21, the federal government declared the phase - the start of the Phase 3, the most serious phase of the coronavirus pandemic. The number of COVID cases continues to grow and is expected to spread rapidly in the first half of May. The focus of phase three is to go beyond the social distancing measures and further reduce movement of people in public spaces to prevent the country's health system from being overwhelmed. As of yesterday, the number of official numbers indicate that there have been around 15,000 confirmed cases and very sadly close to…

Pardon the interruption. We lost all the line of our speaker. Stay on the line. And we have the line of Mr. Angoitia. Please proceed, sir.

Are we back?

Yes, sir.

Thank you. So I was saying - sorry for the interruption. I was saying that to protect our profitability, we have implemented an aggressive cost reduction plan across the company. I guess that we have not paid for the conferencing service, and that’s why we got disconnected. But, no, in all seriousness, this cost reduction plan includes a freeze on new hires, on salary increases, and on consultancy services and a comprehensive renegotiation of all agreements with our suppliers. Also, we have implemented a temporary reduction of executive level compensation. Bernardo and I will cut our salaries by 50% and we will invite Vice Presidents and Directors to reduce their salaries by 10% percent to 25% depending on salary brackets. In addition, the members of the Board yesterday decided to cut their compensation in half. A thorough review of every single cost and expense line item is underway. The cancellation of some productions and the freeze on travel will also help reduce costs and expenses. Moving on to our first quarter results. Consolidated revenue was relatively flat reaching MXN 23.2 billion and operating segment income was down 7.1% reaching a margin of 35.2%. Let me briefly address the operating and financial highlights for each of our three core operations. More than ever, there is a strong need for connectivity, information and entertainment, and we're satisfied - we’re satisfying the need with the content and the service we offer especially through broadband. Starting with cable, revenues were up 9.4% after adding 256,000 RGUs or revenue generating units. Close to half of them were broadband subscribers. This is the fastest pace of organic growth in seven quarters. Operating segment income remains strong reaching a margin of 41.5%. Moving on to Sky. Revenues were up 2.3%. This is the fastest pace of growth…

Thank you, Alfonso. We started the year on solid footing. Over the last 12 months, we have maintained strong momentum. Our business has remained resilient, especially in March and April, even at the effects of COVID are getting stronger every day. During the quarter, we launched a new single-play broadband offer that ranges in speed from 5 to 100 megs, and in price from MXN 210 to MXN 530. The timing of the launch could not have been better since having connectivity options at lower prices can be attractive for many of our subscribers. During March, as the effects of COVID grew, we saw an acceleration in demand for our services. We saw an increase of over 40% in data traffic, both downlink and uplink. Also, the average duration of calls increased by more than 30%, while VOD and transaction VOD also saw similar rates of growth. In addition, some of our customers upgraded to faster speeds. The importance of connectivity boosted new sales, and during March we reached an all-time record in the number of gross additions. We closed the first quarter with 12.9 million RGUs of which 37% were broadband, 29% were voice, and 33% were video. We anticipate that if the lockdown gets extended and economic activity remains to slow some of our customers may not be able to pay for their services. Some of they may disconnect or migrate temporarily to lower-priced products. In that regard, we are launching a lifeline package that will be available during May and June for customers facing difficulty paying their bill. Such lifeline package has a reduced fee of 2 megs and does not allow the download of video content or video games. Throughout this unprecedented time, we will give priority to capital preservation and cash flow generation. So we would be using our planned capital expenditures for 2020 by approximately $80 million. This will not impact our ability to satisfy and fund increases in demand. Some of our customers like hotels, restaurants or retailers are already facing challenging times and it is likely that others will be negatively affected. However, the importance of reliable connectivity is being highlighted during the lockdown. We cannot rule out that we may face challenges in the coming months. But the investment thesis of the big opportunity that the telecom market represents in Mexico remains intact.

Thank you, Salvi. Now, let me turn the call over to Alex, CEO of Sky.

Thank you, Alfonso. Sky continued growing throughout the first quarter and particularly during March when social distancing began in Mexico. In the case of our video service, we grew 8,000 new video RGUs, maintaining the positive trend in net additions since the second quarter of 2019. Also, the rate of recharge of our prepaid service was up during March. In the case of broadband, during the quarter, we added 44,000 new customers. In Central America and the Dominican Republic, our results will be affected by the slowdown in net additions to the strict measures implemented by the local authorities in those markets in response to COVID. Central America and the Dominican Republic, however, account for less than 7% of our total revenues. In all, during the first quarter, we were able to post moderate growth in revenue after six quarters of posting a negative figure. In support of our video customer base, we are providing free access to multiple pay TV channels, and two exclusive pay-per-view entertainment, and classic sports content. We are also implementing a number of retention strategies for our postpaid subscribers such as waiving the reconnection fees combined with discounts for prompt payments. With our prepaid customers, we are launching incentives to increase the recharge rates. We will continue developing other mechanism to support our customers through these unprecedented times. For the moment, our guidance for CapEx will remain at proximately $200 million. But the majority of our capital expenditures are gross related. So there will be room for this figure to come down if gross additions is slowed down in a relevant manner.

Thank you, Alex. Now, let me turn it over to Patricio Wills, Head of Televisa Studios.

Thank you, Alfonso. During the quarter, our productions continue working very well and viewership of our content remains strong, posting mid to high single-digit growth in rate. During the first quarter, the top ten programs in Mexico broadcast television were produced and transmitted by Televisa. This includes six telenovelas, two dramas, one game show, and one comedy. The growth in ratings were even higher during March when social distancing measures began to get implemented. The ratings were particularly strong in our flagship network, Las Estrellas, which carries our most important newscast. Our news programming has great results because of the trust that it earns from our audiences. During the first quarter, our main newscast has a larger audience than all other newscast on free-to-air and pay-TV network combined. In moments like these, one, Televisa becomes the main source of information and point of reference for the general population both on the national level and local, and we take this responsibility very seriously. While we postpone some production through June, most new primetime content for our flagship channel has already been produced and will be transmitted as planned. We have a strong content offered in our pipeline and it will be complemented with content from our very extensive library. In the 9:30 PM, slot, for example, we’re just scheduling a rerun of the most successful biographic series [indiscernible]. In terms of our capital expenditure for 2020, we plan to reduce them by close to 50% to approximately $54 million.

Thank you, Patricio. Moving on, last February 25, Searchlight Capital Partners and ForgeLight announced the acquisition of a majority ownership in Univision. Searchlight is run by Eric Zinterhofer, an experienced world-class investor in the media and telecommunications industry. And ForgeLight which was founded by Wade Davis, the former CFO of Viacom. We're very excited to see Eric involved with us. He has been great. We’re all so excited to see Wade Davis become the new CEO of Univision upon the closing, bringing all his expertise in the industry and building on the great work that Vince Sadusky has done to-date refocusing the company on its core business. The transaction is expected to close before year end. On April 20, Univision pre-announced preliminary financial results for the first quarter and the strong operating momentum was evident. Univision estimates revenue growth of 8% to approximately $660 million, mostly driven by growth in subscriber fees of 19%. Also, it estimates adjusted operating income before depreciation and amortization to approximately $251 million, equivalent to year-over-year increase of about 23%. Over the last 18 months, Univision has been very successful at renewing its distribution agreements with six of the top seven paid television distributors. In all places, it was able to achieve rate increases with step-ups starting in 2020. There are no major agreements up for renewal until the end of 2021 which provides significant revenue visibility. In addition, there is a large opportunity with the virtual MVPDs where Univision is not currently carried. Univision programming is working very well and with its three networks, is now capturing twice as many Hispanic eyeballs as its closest competitor. During February sweeps, Univision posted double-digit growth in primetime ratings while other top networks, regardless of language, posted an average decline of 15%. During the first quarter, Univision…

[Operator Instructions] Your first question comes from the line of Rodrigo Villanueva. Please ask your question, your line is open.

Good morning, Alfonso, and team. I hope you and your families are well as well and thank you very much for your remarks. So, my first question is related to this suspension of new productions. I was wondering if you expect any negative impact on audiences - as a result of it. Then I have another question which is basically a follow-up to what you mentioned regarding content OpEx savings in 2020? I just wanted to confirm if the figure that I got of $54 million is correct? And finally, I was wondering if you could please share with us some color on the performance of the different businesses so far in the second quarter with lockdowns in place for the whole of April? Thank you.

Thank you for your questions, Rodrigo. They're good, as always. I would say that in terms of suspension of production, we have produced and have ready most of the - productions to go all the way to July. As we have an extensive library and we can use reruns of our most successful products in order to minimize the impact. We don't really see an impact if we do that all the way. I mean, we would start facing some issues starting in August, and we’re preparing ourselves for that situation. But we can go all the way to August without having an impact on. As to your question that has to do with CapEx, basically the new I’ll let Carlos Ferreiro to go over the new CapEx forecast.

Yes, the question that you made about the $54 million, what we mentioned on the call, Patricio mentioned around CapEx, we're expecting $54 million of CapEx reduction in the content business. And for the full year, total CapEx for the company or for the Group is between $750 million and $800 million.

And to your last question that has to do with the different businesses, I'll answer in what we’re seeing in terms of advertising sales and the content side of the business. And then I'll ask Alex and I'll ask Salvi to answer in respect to Sky and in respect to EC. In terms of advertising trending in April, I would say that it looks bad. As I mentioned, last week, we entered into phase three which is the most serious phase of the pandemic here in Mexico. So the Mexican authorities will further reduce movement of people in public spaces that is happening. And a large number of our clients are in industries like tourism, like movies, movie theaters and movie distribution, retail and entertainment. And those clients have been very affected by this phase of social isolation and are not advertising at this moment. I guess it doesn't make sense for them to advertise if their shops are closed or if their movie theaters are closed. So the pandemic has already put significant pressure on April and the sales in April, so advertising sales will be heavily affected, I would say during the second quarter. As of the rest of the year, it's impossible to predict. It will all depend on the length and I would say the intensity of the pandemic in Mexico, especially the lockdown period and the impact on economic activity. I would say it all depends going forward on the severity of the recession that is coming. As I mentioned, according to several top banks, the economy is expected to drop somewhere between 6% and 10% in 2020. This is a dramatic decline, unprecedented decline. And of course, that will put significant pressure on our advertising clients. So I’ll ask Alex to answer your question as to how he is looking at things in the case of Sky and then Salvi will take your question in respect to EC.

Thank you, Alfonso. Well, so far during April so far, so good on the main metrics such as a rate of recharges in our prepaid service and the pace of collections among our postpaid customers. Also, gross additions of video and broadband services continue very healthy. However, as you may appreciate it's too early to determine how well we might perform in the second quarter. But I repeat so far, so good.

Thank you, Rodrigo. Thanks for your good wishes. I also hope your family is safe. At this point, well, we're not providing guidance for the second quarter. But what I can tell you is that the demand for connectivity services remains very strong. The need for working from home or from the educational needs or for entertainment it’s very high just like in the last part of March. So we have a very competitive offer. And up until now, we continue to have good momentum. But it's early in the quarter, but up until now we are seeing strong demand for our services.

Understood, thank you very much. And if I may ask, is there any figure that you can provide us with respect to potential OpEx savings, particularly at the Content division? Is there something that you have in mind considering all that you elaborate at the beginning of the call regarding salary cost, et cetera, et cetera?

Yes. Well we’re not giving guidance Rodrigo, for margins or for cost and expenses. But we have implemented the first phase of an aggressive cost reduction plan. This has been across the company and all its businesses. We’re putting together Phase 2 which will be implemented shortly. As I mentioned, as part of Phase 1, there is a freeze on new hires, also a freeze on salary increases and on consultancy services, advisory services. And we’re renegotiating all agreements with our suppliers that mostly have taken place already. As I mentioned, Bernardo and I will cut our salary by 50%. And we will invite starting today our Vice President and Directors to reduce our salaries by 10% to 25% and this will depend on the salary brackets. And also the Board of Directors yesterday decided to cut their own compensation in half. So what I can tell you, that’s Phase 1, then Phase 2, this will include deeper cuts throughout Content, Cable, Sky and the rest of the companies. And this will include production this will include acquisition of content, specifically sports content. As you know most of the leagues worldwide including the Mexican league have been suspended. So, we are not receiving the games and of course, we’re renegotiating those agreements. We are also renegotiating all agreements that were not part of Phase 1 throughout all business segments. So, it’s a comprehensive reduction of cost and expenses. I think from years of experience, we're pretty good at doing that. And this plan, as I mentioned, will be comprehensive and will include all costs and expense lines.

Your next question comes from the line of Gordon Lee. Please ask your question. Your line is open.

And I'd like to add my best wishes to everybody and their families. Two quick questions. First on the Univision write-downs. It looks like you're still carrying Univision at about MXN 1 billion on your books and I just wanted to see whether that's consistent with the valuation that was paid in the transaction that took place in the first quarter, or if you're still marketing above that. And the second question on the balance sheet, I was wondering if you could remind us what significant covenants, if any, you have on your debt and when those tests take place. Thank you.

Yes. Thank you, Gordon. I hope that you and your family are safe and healthy. I’ll ask Carlos Ferreiro, our CFO, to answer both of your questions.

Hi, Gordon. Good morning. Regarding Univision, as you know, the transaction was announced on February 2020, and this triggered the review of the book value at which we carry Univision in our books. You’re totally correct. The value at which we have agreed and decided to carry the investment going forward is MXN 1.1 billion. The transaction value of Univision was not made public, but that’s not the value to us. It was the value to a controlling shareholder that strongly wanted to exit. And as you know, we consider Univision to be a strategic partnership and a strategic asset for Televisa. We provide most of the prime time content, the programming license agreement is a long-term contract that it's very important for us and that we monetize our content in the U.S. Hispanic market. So it’s clear that the value of this investments for us considers the different perspective and time frame from the private equities that sold its stake. As of your second question, on our credit facilities, we have covenants of four times net debt. We finished the quarter with a 2.9 times, so we still have a lot of room - we have a room - we’re compliant with our covenants as we speak now.

Your next question comes from the line of Marcelo Santos. Please ask your question. Your line is open.

Thanks for taking the questions and hope you’re also are well and you remain well. The first question is on public advertising, we saw the government commenting on making very large cuts on advertising, so just want to understand if this is already reflected in the first quarter. And the second question is regarding the upfront, given the COVID pandemic, do clients have some option to use the deposits they made beyond the 2020 or until beyond March 2021 or they do need spend the values they committed in this time frame? Thank you.

Thank you, Marcelo, and thank you for your wishes. We wish you the same. In terms of the upfront, I would say that those agreements are basically run until year-end. Materially, most of those agreements we run until year-end and only cover 2020. In respect to your first question, I would say that, as you know and it has been publicly mentioned, the government is cutting down on many expenses and we know that advertising is going to be one of them. So, we believe advertisement from the federal government will be reduced substantially maybe even to zero. However, governmental entities and local governments might not be affected. Government advertising represented 7% of Televisa's total advertising revenue last year and 1.3% of consolidated revenue in 2019.

Your next question comes from the line of Fred Mendes. Please ask your question. Your line is open.

Good morning, everyone, and thanks for the call and hope everyone is safe as well and your family. I have two questions here. I mean the number one is - the cable result, it seems strong and I just wanted to understand how much the COVID-19 is impacting the process of the homes connected, it looks so far that even though, I believe there is a negative impact from that, but it may be so strong that we have been able to increase on net adds significantly? This is my first question. Then, my second question related to the content advertising, just to understand the dynamics here, if you can just give us, I don’t know a range or a breakdown to the advisers on the private segment between Mexican companies and international companies. I assume that with the Mexican peso depreciation, if we have the international companies, that we may have a budget to not see in order to present some kind of opportunity for you guys to, let’s say, increase the revenue over the next. But, of course, it could be anything in a very specific situation, but still imagine there is an opportunity there, so just to understand the dynamics there. Thank you.

Yes. Thank you, Fred for your questions. I’ll ask Salvi to answer the first question.

Yes. Thanks, Fred. Thanks for your good wishes. Likewise, keep safe. Regarding the strength of the first quarter in terms of net additions, yes, you're absolutely right. It was basically towards the end of the quarter. As Alfonso pointed out, the lockdown got stronger in Mexico even the second half of March. So, what we really saw on the second half of March was much stronger reconnections or payments from our customers. And that's why what we see in terms of subscribers, I think it looks better than in terms of the overall quarter and it had to do with the end. It was not enough to take us to positive net adds on video, but I think that it was very strong on our broadband. As I pointed out, we launched single play and ranging from 5 megs to 100 megs, and that offer has been - has had wide acceptance from our customer base because broadband is the most resilient product. As the lockdown gets extended, I have no doubt that connectivity needs will be very strong and would be growing even during the lockdown. However, some of our customers may face problems on paying, and that's why we have to be cautious. But the demand of our services has increased the average use of our customer has increased about 30% on the downlink and 50% in the uplink. So we're very happy that our network was up to the needs of our customer base and the investments that we made paid off. But yes, we expect it to remain strong.

Yes Fred, as to your second question, the up-front depository - the up-front plans are peso-nominated. And the challenge that we're looking at is that resulting from the valuation of the Mexican peso, most of those transnational companies have to report to their shareholders the earnings that they have forecasted in dollars. So as a consequence, they're adjusting and reducing costs and expenses. And, of course, that affects us.

Thank you, Alfonso. Thank you, Salvi. If you just allow me one more question, back on the cable, just again to understand the dynamics. If you can just match let’s say - I don’t need a breakdown, but just like I’m asking here to let us know - I mean most of these net adds - I mean are they coming from the competitors now that people are staying home and working from home, and now we can really see the quality of their network? Or you’re seeing a new guy jumping into the market because I think the scenario assume that this trend should continue? And let’s say your main competitor has most corporate [ph] and you’re coming with cable. So just understand the dynamics here again? Thank you.

Well, what I would say is on our investment thesis is connectivity in Mexico has a low penetration. It will increase overtime. I guess that households that did not have the need of having a broadband at home resulted with the need once that they are in the lockdown and especially because mobile cannot be a perfect substitute specifically because mobile has data caps and the needs that they have. So I guess that this is helping. At this point, it’s helping to increase penetration because some of the results that have been published and what will be published, I guess that demand for connectivity is strong. And it’s simply because penetration is low in Mexico. So I hope that this will help increase that. That is the first stage. Over time, I see this as an opportunity because the networks are being put at a test. And we might be able to take customers away from our competitors depending on the quality that everyone is providing. But at this point in time, I think that it's more towards new customers for all of us.

Your new question comes from the line of Soomit Datta. Please ask your question. Your line is open.

Soomit with New Street Research and all the best gentlemen there from the U.K. A couple of questions, if I could narrowing in on - Cable also please. One to Salvi, can you give us a quick update on your thoughts for the Enterprise segment and there look to be a bit of a slowdown in the quarter there. I just wondered was that COVID-related - is this the segment which is more or less exposed to the broader threats in the economy a little bit of color there would be great? And then, secondly, kind of on cable but also relevant to Sky as well, please, just on the margin side. I guess we haven't seen much impact yet from - well, certainly not a full quarter's impact yet from the peso-dollar move. Should we anticipate further pressure there? I appreciate there's a number of cost initiatives underway, which will hopefully offset. But just only on the translation effect, should we be expecting some weakness on the margin side? Thank you.

Hi, Soomit yes on the margin question, I'll ask Alex to answer in respect to the Sky, and then Salvi can take your first question plus the margin question and what has to do with EC.

We expect - we got to see how this - the situation, the current situation will evolve. But as Alfonso mentioned earlier, we at Sky, have already implemented a number of cost and expense savings that will help us to try to keep the current margins at this level or slightly below this level. But our target is through the implementation of these cost savings initiatives and additional debt, we may implement going forward is to protect our EBITDA margin.

Salvi?

Yes, thank you. Thank you, Soomit for the questions. Well, regarding the enterprise segment, the overall enterprise segment represents about 14% of our sales. But it's mainly comprised of large clients. I guess that what you're asking is the risk of businesses heavily affected, like hotels, like restaurants, like retailers, we have a smaller-than-what-I-would-like market share on that industry. We estimate that it's less than 5% of our enterprise segment. So the impact really is not that big from the hotels or the medium-sized businesses are highly affected. Of the rest of the clients of the Enterprise segment, these are big clients, and these are projects that they do need. And some of them have even asked us for more capacity given their needs. Now, regarding the small clients, the micro clients and small businesses, they are not on the Enterprise segment, but they are basically on our residential offer. We estimate that about 8% of our total customer base is nonresidential. However, it’s difficult to determine what the percentage is really small shops that are closed or people that is actually working from home and they do have the connectivity need. Any impact on collections will be reflected in the churn of our MSO business. Those that cannot pay it's already reflected. We are offering them alternatives including migration to lower-priced packages or temporary suspension. Briefly, regarding our margin we believe that we have a good margin. The cost that have increased it's basically decisions that we have taken to improve how we are programming or to create promotions like portability or like the automatic recurring payments or the bundles, and that has had a small reduction in margin but we're happy with the margin. All these things contribute to reduce churn. We will be disciplined as Alfonso pointed out. So I think that we'll be able to maintain our margins.

And we have no questions on queue. Presenters, please continue.

Well, thank you very much for joining us. If you have any follow-up questions please call Carlos or our Investor Relations team. Thank you again. Stay safe. Stay healthy. Bye.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.