GRUPO TELEVISA, S.A.B. annual report, Q4 FY2019

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Grupo Televisa, S.A.B. — FY2019 Form 20-F

Reporting period: Fiscal year ended December 31, 2019. This is an annual report, not a standalone Q4 filing; the filing reports that 27.8% of full-year consolidated sales occurred in Q4 but does not provide a clear standalone Q4 income statement. Financial statements are prepared under IFRS and amounts below are in Mexican pesos (Ps.), unless stated otherwise.

Business context

Televisa operates Cable, Sky, Content and Other Businesses, including Mexican cable and broadband services, satellite pay television, content production and licensing, publishing, gaming and sports-related activities. Radio was presented as held for sale beginning in Q4 2019. The company’s GDSs trade on the NYSE as TV.

Financial performance and liquidity

  • Revenue: Ps.101.76 billion, up 0.5% from Ps.101.28 billion in 2018.
  • Operating income: Ps.17.01 billion, down 16.0%; operating margin was 16.7%, versus 20.0% in 2018. The comparison was affected by a 2018 gain on the Imagina disposal and higher 2019 depreciation and amortization.
  • Net income: Ps.6.11 billion, down 19.8%. Net income attributable to Televisa shareholders was Ps.4.63 billion, down 23.0%; basic and diluted earnings were Ps.1.60 and Ps.1.53 per CPO, respectively.
  • Finance expense, net: Ps.8.81 billion, broadly unchanged from Ps.8.78 billion. Interest expense was Ps.10.40 billion, up from Ps.9.71 billion. Income tax expense fell to Ps.2.67 billion from Ps.4.39 billion.
  • Cash flow: Operating cash flow was Ps.27.27 billion, down from Ps.33.71 billion. Investing cash outflow was Ps.17.01 billion and financing cash outflow Ps.14.30 billion. Cash declined Ps.4.10 billion to Ps.27.45 billion.
  • Capital spending: Property, plant and equipment expenditures were Ps.19.11 billion, versus Ps.18.50 billion in 2018. Management expected 2020 capital expenditures of approximately US$750 million.
  • Debt and liquidity: Year-end debt principal was Ps.122.38 billion, including Ps.0.49 billion current; reported long-term debt, net of finance costs, was Ps.120.44 billion. Lease liabilities were Ps.9.36 billion. Cash and equivalents were Ps.27.45 billion; current assets were Ps.68.12 billion and current liabilities Ps.42.39 billion. The company prepaid Ps.21 billion of local notes during 2019 and issued US$750 million of 5.25% notes due 2049 and a Ps.10 billion five-year bank loan.
  • Shareholder returns: Televisa paid Ps.1.07 billion in 2019 dividends, equivalent to Ps.0.35 per CPO. The Board did not propose a 2020 dividend, citing liquidity preservation.

Material changes versus 2018

  • Cable: Revenue rose 15.1% to Ps.41.70 billion and segment income rose 16.3% to Ps.17.80 billion. RGUs reached 12.65 million, up from 11.84 million; broadband and voice RGUs grew, while video RGUs declined.
  • Sky: Revenue fell 3.0% to Ps.21.35 billion and segment income fell 6.6% to Ps.9.12 billion. Video RGUs declined to 7.43 million, while broadband RGUs grew to 386,114.
  • Content: Revenue fell 10.6% to Ps.35.06 billion, largely because 2018 included Ps.2.73 billion from World Cup rights. Excluding that non-recurring item, segment revenue fell 3.9%. Advertising revenue declined 8.0%, driven substantially by lower government advertising; private-sector core advertising was down 1.8%. Segment income fell 14.9% including the World Cup comparison, or 5.9% excluding it.
  • Other Businesses: Revenue rose 6.3% to Ps.8.20 billion and segment income increased to Ps.1.46 billion from Ps.0.41 billion, supported by soccer, gaming and film distribution.
  • Consolidated operating income also reflected the absence of the Ps.3.51 billion pre-tax Imagina disposal gain recorded in 2018, Ps.1.17 billion higher depreciation and amortization, and a Ps.1.32 billion net other expense in 2019 versus Ps.1.56 billion net other income in 2018.

Outlook, risks and unusual items

  • COVID-19: The pandemic began after year-end and did not adjust the 2019 financial statements. Management said it had affected Q1 2020 and could materially affect results, but could not estimate the full impact. Risks include reduced advertising demand, curtailed content production, postponed or cancelled sporting and entertainment events, and suspended casino operations. Cable and Sky initially saw increased additions or sales under stay-at-home restrictions, which management cautioned might be temporary.
  • In March 2020, Televisa drew Ps.14.77 billion under its revolving credit facility as a precautionary liquidity measure. It also did not propose a 2020 dividend. Management expected to fund ordinary 2020 operating cash needs with operations and cash on hand; planned 2020 capital expenditures were approximately US$750 million.
  • Univision investment: The 2019 carrying value of UHI shares and warrants was Ps.42.0 billion, including Ps.33.78 billion of warrants measured using significant unobservable inputs. After a 2020 transaction announcement, Televisa reported a Ps.21.94 billion decline in warrant fair value and a Ps.5.46 billion decrease in the carrying value of UHI shares as of March 31, 2020. The filing identifies this valuation as a significant estimation and audit matter.
  • Regulatory and legal matters: IFT preponderance rules constrain broadcasting activities and remain subject to review; a separate IFT investigation following the FTTH acquisition had a preliminary finding concerning substantial power in 35 markets, with a final resolution pending. A securities class action concerning alleged disclosure and FIFA-related matters was ongoing; Televisa said it would defend the case and considered the claims without merit. Tax authorities assessed Ps.682 million against the company and Ps.1.334 billion against a gaming subsidiary; both assessments were being challenged, no provision was recorded, and outcomes were uncertain.
  • Dispositions: The Radiópolis sale had not been fully paid at year-end; Coral later paid Ps.603.4 million, with a final payment expected in June 2020 under a settlement. The proposed sale of Televisa’s 40% OCEN stake for Ps.5.21 billion remained subject to closing conditions.
  • Reporting and accounting: IFRS 16 adoption increased recognized lease liabilities and changed expense presentation. KPMG issued unqualified opinions on the IFRS financial statements and internal controls as of December 31, 2019.

Investor verification priorities

  • Confirm the company’s standalone Q4 results and reconcile them with the annual figures; the filing does not provide a clear Q4 income statement.
  • Track the impact of COVID-19 on advertising, subscriber additions, programming, casinos, cash generation and access to financing, alongside the 2020 RCF draw and capital-spending plan.
  • Review debt maturities, floating-rate exposure, lease obligations and covenant headroom, including the effects of the 2020 borrowing.
  • Assess the valuation assumptions and sensitivity of the UHI shares and warrants, and the effect of the UHI ownership transaction.
  • Monitor the IFT market-power proceedings, broadcasting restrictions, tax assessments, securities litigation, and completion and collection of the Radiópolis and OCEN transactions.
  • Evaluate continuing segment trends: Cable growth versus Sky video-subscriber losses and Content advertising weakness.