TV

Business Context and Reporting Period

Company: GRUPO TELEVISA, S.A.B.
Filing Type: Form 20-F (Annual Report)
Reporting Period: Fiscal Year Ended December 31, 2003
Business Overview: Televisa is the largest media company in the Spanish-speaking world, operating primarily in Mexico. Its core segments include Television Broadcasting (Channels 2, 4, 5, and 9), Programming Licensing (notably to Univision), Publishing, Cable Television, and Direct-to-Home (DTH) satellite services (Innova). The company also holds significant interests in radio, sports promotions, and internet portals.

Key Financial Metrics (2003)

Material Changes vs. Prior Period (2002)

• Revenue Growth: Net sales increased by 5.1% (Ps. 1,147 million) to Ps. 23,563 million, driven by growth in Television Broadcasting, Programming Licensing, and Publishing segments.
• Profitability Surge: Net income increased significantly by 369% to Ps. 3,597 million. This was primarily due to a Ps. 1,676 million decrease in "Other expense - net" (driven by a gain on the disposition of the Spanish DTH venture and reduced goodwill write-offs) and a Ps. 1,230 million improvement in equity results from affiliates.
• Segment Performance:
  • Television Broadcasting: Net sales rose 5.4% and operating income rose 14.7%, aided by political advertising and reality shows (Big Brother).
  • Cable Television: Net sales declined 14.4% due to a shrinking subscriber base and the impact of a 10% excise tax (later eliminated).
  • Programming Licensing: Net sales increased 11.6% due to higher royalties from Univision.
• Debt Reduction: The company repaid remaining Series A Senior Notes (maturing May 2003) using proceeds from a new Ps. 800 million credit agreement.

Guidance, Outlook, and Risks

• Consolidation of Innova: Effective April 1, 2004, Televisa will consolidate its DTH joint venture, Innova, into its financial statements under new accounting standards (FIN 46). This is expected to increase total assets by Ps. 2,928 million and total liabilities by Ps. 5,237 million, while decreasing stockholders' equity by Ps. 2,309 million due to Innova's accumulated deficit.
• Dividend Policy: The Board approved a regular annual dividend of Ps. 0.35 per CPO. A special dividend of Ps. 0.87 per CPO was also approved, totaling Ps. 1.22 per CPO paid in May 2004.
• Recapitalization: Shareholders approved a recapitalization involving a 25-for-1 stock split and the creation of a new class of B Shares, increasing the total number of shares by a factor of 39 without diluting equity interests.
• Key Risks:
  • Currency Fluctuation: Significant exposure to the Mexican Peso vs. U.S. Dollar, as revenues are Peso-denominated while many costs and debts are USD-denominated.
  • DTH Joint Ventures: Continued substantial losses in DTH ventures (Innova and MCOP). MCOP faces going-concern risks due to partner financial difficulties (Globopar) and satellite lease obligations.
  • Regulatory: Risks related to the renewal of broadcast concessions and potential changes in Mexican tax laws or antitrust regulations.

Investor Verification Checklist

• Accounting Standards: Verify the impact of the April 1, 2004 consolidation of Innova on future balance sheet leverage and equity ratios.
• Goodwill Impairment: Review the significant goodwill write-offs in 2002 and the reduced write-offs in 2003 to assess the stability of asset valuations.
• DTH Guarantees: Confirm the extent of guarantees provided for DTH joint venture satellite lease obligations (approx. U.S.$ 188 million total), particularly regarding MCOP's financial viability.
• Univision Royalties: Monitor the growth of royalties from Univision, which accounted for a significant portion of Programming Licensing revenue.
• Dividend Sustainability: Assess the ability to maintain the new dividend policy given the increased debt load from the Innova consolidation and ongoing DTH losses.