Business context and reporting period
Grupo Televisa, S.A.B. filed this Form 20-F for the fiscal year ended December 31, 2018; it is an annual report, not a standalone fourth-quarter filing. The company reports under IFRS as issued by the IASB, in Mexican pesos (Ps.). Its businesses include Content, Cable, Sky and Other Businesses. The filing says fourth-quarter sales are seasonally elevated but does not provide a clear standalone Q4 income statement or cash-flow value; Q4 accounted for 26.4% of consolidated net sales in 2018.
Key financial metrics
| Metric | FY 2018 | Prior comparable period |
|---|---|---|
| Net sales | Ps.101.3 billion | Ps.94.3 billion in 2017 |
| Operating income / margin | Ps.20.3 billion / 20.0% | Ps.14.2 billion / 15.1% |
| Net income | Ps.7.6 billion | Ps.6.6 billion |
| Net income attributable to Televisa stockholders | Ps.6.0 billion; Ps.2.07 basic earnings per CPO | Ps.4.5 billion; Ps.1.54 per CPO |
| Net finance expense | Ps.8.8 billion | Ps.5.3 billion |
| Cash from operating activities | Ps.33.7 billion | Ps.25.1 billion |
| Cash used in investing activities | Ps.23.9 billion | Ps.17.3 billion |
| Cash used in financing activities | Ps.16.5 billion | Ps.16.5 billion |
| Capital expenditures | Ps.18.5 billion | Ps.16.8 billion |
| Cash and cash equivalents at year-end | Ps.32.1 billion | Ps.38.7 billion |
| Total assets / total equity | Ps.297.2 billion / Ps.104.5 billion | Ps.297.2 billion / Ps.99.7 billion |
| Debt | Ps.123.1 billion principal, including Ps.121.0 billion long-term and Ps.2.1 billion current debt and interest payable; finance leases and other notes payable are additional | Ps.124.1 billion principal |
Net cash decreased Ps.6.7 billion during 2018. Cash from operations less property, plant and equipment expenditures was approximately Ps.15.2 billion, calculated from the reported figures. Current assets were Ps.72.1 billion and current liabilities Ps.48.5 billion. The annual ordinary dividend was Ps.0.35 per CPO; 2018 dividends paid totaled Ps.1.07 billion.
Material changes versus 2017
- Sales increased 7.4%; operating income rose 42.2%, and net income attributable to Televisa stockholders rose 32.8%.
- Operating performance benefited from higher Content and Cable sales and a Ps.2.7 billion contribution from sublicensing FIFA World Cup 2018 rights. Content sales rose 15.4%; Cable sales rose 9.6%.
- Other income improved by Ps.3.9 billion, principally due to a Ps.3.5 billion pretax gain on the sale of Televisa’s 19.9% stake in Imagina.
- Net finance expense increased Ps.3.5 billion, reflecting derivative losses, reduced foreign-exchange gains, higher interest expense and lower interest income. Share of income from associates and joint ventures fell Ps.1.4 billion, partly because Imagina was sold and UHI earnings were lower.
- Operating cash flow increased, but year-end cash declined Ps.6.7 billion. Advertising deposits and advances fell 32.1%, to Ps.10.9 billion.
- Cable RGUs reached 11.8 million, including 553,226 acquired FTTH units from Axtel. Sky video RGUs declined by 365,486 to 7.64 million, partly following World Cup-related cancellations; Sky added 91,841 broadband RGUs.
Outlook, commentary, risks and unusual items
- Management expected 2019 capital expenditures of approximately US$1.0 billion, including about US$650 million for Cable and US$250 million for Sky. Funding may include operating cash, cash on hand, equity or additional debt.
- Management’s stated strategy is to expand Cable and Sky, preserve profitability and financial discipline, develop new initiatives and assess possible disposals of non-core operations. Mexico’s GDP growth was 2.0% in 2018; the filing cited a government forecast range of 1.1%–2.1% for 2019, not company guidance.
- Key exposures include Mexican peso depreciation against the U.S. dollar, interest rates, inflation, economic and political developments, advertising demand, competition from OTT and other platforms, and extensive telecommunications and broadcasting regulation. The Group reported a net U.S.-dollar monetary liability position of US$3.17 billion at year-end.
- IFT preponderance measures restrict aspects of broadcasting infrastructure sharing, advertising sales and content rights; legal challenges remained pending. The company also identified risks from concession renewals, satellite interruption, cyber incidents and its investment in UHI. All digital broadcast television concessions were renewed in 2018, with Ps.5.75 billion paid; terms run to 2042 for spectrum use.
- A purported U.S. securities class action alleging disclosure violations related to FIFA and prior internal-control weaknesses survived Televisa’s motion to dismiss in March 2019. Televisa said it considers the claims without merit and intends to defend them; ordinary-course claims were not expected by management to materially affect the financial statements.
- Material weaknesses identified for 2016 and 2017 were reported as remediated; management concluded controls were effective at December 31, 2018, and KPMG gave unqualified opinions on the financial statements and internal control. KPMG became auditor in 2018, replacing PwC.
- IFRS 16 was adopted January 1, 2019. Management estimated initial increases of 1.5%–2.0% in assets and 2.5%–3.0% in liabilities, primarily from leases; the filing says the impact affects presentation of operating expenses, depreciation and interest.
Important facts for investors to verify
- Confirm the composition and maturity profile of debt, lease obligations and other notes payable, and assess refinancing and currency exposure.
- Review the sustainability of 2018 operating-income improvement, including the one-time Imagina gain and World Cup-rights revenue, and the underlying trend in advertising and recurring segment earnings.
- Track Cable subscriber growth and margins against acquisition-related additions, and monitor continued Sky video subscriber losses and broadband expansion.
- Assess the status and potential financial impact of the securities class action, IFT proceedings, concession conditions and other legal contingencies.
- Verify 2019 capital-spending execution, cash generation and the effect of IFRS 16 on reported leverage and operating metrics.
- Consider the valuation sensitivity of UHI warrants: they were a Ps.34.9 billion Level 3 asset, and a 10% change in share-price assumptions would affect equity by approximately Ps.3.5 billion.