Vocento S A : C. Call Results 1H21

CONFERENCE CALL

TRANSCRIPTION

28 JULY 2021

Investor Relations

Transcription of Conference Call on 1H21 Results

LUIS ENRÍQUEZ

Good morning and many thanks for attending Vocento's conference call on our 1H21 results. All of the numbers that we will be discussing today are compared with the year 2019, which we feel is a solid benchmark. We will skip over the comparison with 2020 as the massive impact in that year on revenues, costs and margins makes it unhelpful to analyse the rebound in 2021. So we will be comparing our performance this year with the results of 2019.

We will start with the targets we disclosed to the market, especially for revenues coming from readers, i.e. including margins from circulation revenues, digital subscriptions and other concepts. We intended to maintain this margin on readers at 2019 levels in the next five years. Well, in the first half of 2021 we have achieved this. Margins on readers are higher than they were in 2020 and in 2019. Here we have to highlight the performance of digital subscriptions, which was more or less in line with our targets. This shows that we are complying with our guidance.

In advertising, also compared with 2019, revenues are 18% below their level in 2019, with an improvement of 1.2 p.p. compared to the market. This is even with the rebound of television and other media linked to the European Championship in 2Q, so we are outperforming the market. In the first quarter, down -22%, now in the 2Q, we are at -14%.

Moving to digital, if we use the full scope of Vocento's digital revenues then we are

2.9 higher than in 2019, or excluding Classifieds we are 13.2% up on 2019. What is happening at Classifieds? In automotive there is a temporary problem in the supply chain, with chips from China, making it hard to deliver new vehicles, plus there is a lack of rental stock because of Covid and some dealers are finding it hard to add second hand stock. All this means lower sales and lower prices. It is a problem of ARPU, not a problem of clients, and we think it is completely temporary. This is why we have excluded Classifieds from the scope to make this comparison.

Turning to margins, we also set the goal of returning to the 2019 level of reported EBITDA margins. Well in 1H we were 1.6 million euros above that. If we compare the recurring EBITDA of 1Q21 with that of 2019 then we are 5.2 million below, but on a reported basis we are 1.4 above the level of 1Q19. This is because of the compensation payments in 2019. In 2Q we were better by 100 or 200 thousand euros on a both a reported and a comparable EBITDA basis. So we are meeting our target. It is true that we have worked hard on cost controls, especially costs related to circulation and industrial processes, and we have also concluded a salary reduction for nearly all group companies, for 2021 and 2022. We have restructured deeply in recent years to try to protect employment, from now on we will probably have to cut corporate costs, and probably not labour or personnel expenses. Thanks to this control

Gran Vía don Diego López de Haro, 45, 3ª planta. 48011 Bilbao. (Bizkaia). Tel. +34 902 404 073 - ir@vocento.com

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Investor Relations

Transcription of Conference Call on 1H21 Results

of costs, combined with the revenue performance, we ended the period in line with our budget and slightly above the targets that we have set for ourselves.

In this half we also completed the divestment of our minority stake in Izen and sold the headquarters of El Diario Vasco in San Sebastián. Both transactions have brought out the value that is hidden in our company, i.e. the value that is not included in Vocento's market capitalization. Neither contributed to our EBITDA. As a result, we have reduced debt ex IFRS16 to 17 million, which puts us in a fantastic position to make any investment in the future in non-organic growth, or any other transaction that might arise. In other words, we have the ideal financial position for our group's future plans.

In Classifieds, after having seen the results of Adevinta, we are basically in line with them, in revenues at the same level as 2020 and a bit lower than 2019, but with margins that are line or even higher, if we compare 1H20 with 1H19. There has been a temporary issue with used car dealers in the period. Joaquín Valencia will give you more information.

Before handing over to Joaquín Valencia, let me look at the latest company to join our group, Premium Leads. This company will add to our advertising capability in a market which is demanding more and more performance-based advertising that increases sales or leads. This is an experienced company. It will complete our advertising abilities and will accelerate our progress in results-based advertising, which is something that all media businesses will have to look at. There are obvious synergies between Premium Leads and Vocento's advertising business. I will be delighted to answer any questions about this in the Q&A session.

And now I will hand over to Joaquín Valencia who will go into more detail about the financial performance.

JOAQUÍN VALENCIA

Many thanks Luis. As Luis said, at the EBITDA level we are completely in line with our target for returning to the 2019 EBITDA level in 2021, going from 14.4 million in 1H19 to 16 million in 1H21. The fall in print advertising was offset by the increase in the margin on readers, i.e. with the sale of content we are generating more than we made in 2019, because of the growth in digital advertising, combined with better commercial costs and lower compensation payments in 2021 than in 2019. The press business improved by 1.2 million euros, and the improvement was also supported by new businesses such as Gastronomy and Agencies. Excluding the impact of compensation, we can see that in comparable EBITDA we are down 5 million in 2019. But as Luis just said, in 2Q standalone we reached a cruising speed that is higher than in 2Q19, not by much but higher nonetheless. This gives us some reassurance for the rest of the year that we will meet our target.

Gran Vía don Diego López de Haro, 45, 3ª planta. 48011 Bilbao. (Bizkaia). Tel. +34 902 404 073 - ir@vocento.com

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Investor Relations

Transcription of Conference Call on 1H21 Results

Obviously it was also a strong quarter for deleveraging, with net debt ex IFRS16 of just 16 million euros. Adding 20 million euros from IFRS16, we have debt of 38 million euros, so very low leverage, at c. 0.5x the EBITDA of the last 12 months, excluding IFRS16.

So, low debt and very high cashflow of 15 million euros, compared with 6.6 million in 2020 and 14.7 million in 2019. The components of this solid cashflow performance include working capital, up 7 million euros because of good receivables from clients, plus a low level of inventories, which also helped improve working capital.

Extraordinary items include a cash inflow of 20.9 million. That includes 18.4 million euros from real estate sales, with 17.8 million euros from El Diario Vasco, including VAT paid on the sale which we received in June and will have to pass on in July, so this is temporary and much higher than the sale price. As well as the real estate sales we also carried out capex in our buildings in Madrid and Bilbao. There was a cash inflow from the divestment of Izen, minus some earn-outs for other companies bought in previous years. 20.9 million euros of one-off cash inflows. The payment for Premium Leads that Luis mentioned will be booked in July so it is not included in 1H.

These sales also fed through to the P&L, where we have a capital gain of 10.6 million euros in the line for the divestment of fixed assets, corresponding partly to El Diario Vasco. There was a also a capital loss on the sale of financial instruments, which corresponds to the sale of Izen for around 1 million euros (in fact a negative €922,000). These are the two most unusual items. Then there is the usual amortization of goodwill in our film catalogue, that we make every year, so 1 million euros in 1H and 2 million euros in the full year as the value of the catalogue decreases. And obviously in minority interest and in tax there is an impact from the sale of the headquarters of El Diario Vasco. A subsidiary with minority interest made the sale, and their stake in the building was significant.

Finally, I will just mention that in the P&L, if we exclude the results from Izen and the impact of El Diario Vasco, we would have a very small net loss of around €500,000. So the bottom line looks good for the rest of the year.

And I think those are the main items I want to highlight. We will now open the call to your questions.

Q&A SESSION

ENRIQUE YAGÜEZ - BESTINVER SECURITIES

Gran Vía don Diego López de Haro, 45, 3ª planta. 48011 Bilbao. (Bizkaia). Tel. +34 902 404 073 - ir@vocento.com

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Investor Relations

Transcription of Conference Call on 1H21 Results

Hello everyone and thanks for the presentation. I have three questions.

The first is about the advertising market. Have you seen in July and August any sort of slowdown compared with the second quarter?

The second question is about M&A and your balance sheet, and the acquisition of Premium Leads. Are you comfortable in the digital space, do you have all the instruments you need or do you want to add some more assets in the short to medium term? And are you planning any sort of transaction or organic development in the Classifieds automotive business to get it out of the rut?

And my third question is about your guidance for online subscribers. In 1Q you were at 93,000 and the guidance was for 100,000. Are you able to increase the guidance? And how many of the 100,000 do you think will be paying subscribers? Thanks.

L.E.: Thanks Enrique. What we are seeing for the rest of the year in advertising is that there will be some stagnation in the summer, with a lack of advertising spend in July and August and a slowdown from the recovery of 2Q. But this is not what we expect in the last four months, when will probably see a recovery along the lines of 2Q. So this is the basis for our estimates from the beginning of the year.

About the digital capabilities available to us, well everything is moving very fast. We need the ability to act optimally in the digital advertising market and the e-commerce market. The group needs the capacities to rise to the digital challenge, which is evolving all the time. We are continuously looking for opportunities in the market which will support us. We are not in any hurry but if we find a company that completes our offer, like Premium Leads, of course we will go for it. Our balance sheet structure is as it is partly in order to enable us to make the acquisitions that we think we need to enhance our digital performance.

About Classifieds and non-organic movements, in the automotive business what we are seeing is temporary. We are not very concerned about the medium- and long- term, we expect we will have the scale we want. The deal with Scout24 went very well and we are more or less where we want to be. There is probably the chance of a non- organic transaction in real estate. We have said from the beginning that Classifieds is a core business that we will maintain. None of the two options (in this case real estate) would be subject to divestment. If any transaction happened, it would be in order to grow. That is the strategy, as it was with automotive and Scout24.

We are maintaining our target of 100,000 subscribers. For strictly paying subscribers, you can see the breakdown on slide 4 of the presentation. There was an increase from 62,000 paying subscribers in December 2020 to 78,000 in June 2021. We believe that the increase in the last four months will help us reach our target of 100,000.

Gran Vía don Diego López de Haro, 45, 3ª planta. 48011 Bilbao. (Bizkaia). Tel. +34 902 404 073 - ir@vocento.com

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