Vocento S A : C. Call Results 1Q22

CONFERENCE

CALL

TRANSCRIPT

18 MAY 2022

Investor Relations

Transcript of Conference Call on 1Q22 results

LUIS ENRÍQUEZ

Good morning everyone and thanks for attending our 1Q22 conference call. Results in the quarter were heavily impacted by some extraordinary items. It is difficult to compare with the prior-year period for this reason.

Let's begin by noting that NET TV and Veralia Distribución de Contenidos are no longer consolidated, with an impact of about €1.8 million. There were compensation payments of €2.5 million in the quarter, with savings to come over the course of the year. These payments do not impact the year so much but they do impact the quarter. We also held Madrid Fusión in the first quarter whereas last year it was in 2Q. So these are some of the variables influencing this quarter's results.

Advertising revenues grew by 5.8% in total, with a better performance from local advertising revenues and especially in print advertising, which is interesting. This is not only the case in Spain and in our company. We have also seen the same trend in the earnings of other companies such as Reach in the UK. Essentially, there is some slowdown in national digital advertising mainly because of the semiconductor shortage and the automotive market crisis, which is one of the macro factors that we said are influencing these results.

The €1.2 million decrease in our margin on circulation revenues is within our budget and mainly reflects the price of energy, which is affecting not only the printing sector but also the cost base of all publishers alongside the rise in the price of paper. In principle this is all within budget. In general, the results are in line with our budget for the year, in spite of all this uncertainty.

Our cash continues to be strong as always, at the €4 million level. Excluding IFRS 16 leases of €4 million we have a positive net financial position and a cashflow yield of 26% which is one of the highest of any listed company in Spain.

As you can see in this first slide, we are also progressing with our sports media project. We will talk more about this later as it is one of the major projects we have for this year and coming years.

What has been the macro impact? In addition to the crisis of semiconductors, transport and freight, which was in our budget, we now have the raw materials crisis, i.e. paper, printing plates, etc. In response we have applied a series of measures in the print sector, along the lines we had already planned. In addition there is now the impact of CPI and the increasing pressure on our costs, not only in personnel expenses but also other costs and raw materials, plus the impact of the war in Ukraine, which is leading to a clear increase in inventory on our news sites. There is also the problem of brand safety and where to advertise the messages of our advertisers, although we are the only company in Spain which has software that can position their messages in the right news context. Nevertheless, despite this, the withdrawal of advertiser messages because of the war is to some degree a negative for us.

On the positive side, we have the recovery in tourism, leisure and travel, which was affected by Covid. So it has been a quarter of uncertainties which will certainly continue in the second quarter.

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

Transcript of Conference Call on 1Q22 results

Moving to digital subscriptions, there was an increase of 26% in March which gives us lots to think about. We do have different levels of maturity in the digital subscriptions area when compared with our competitors. For example El Correo, El Diario Vasco, El Diario Montañés, and Ideal de Granada, have had ON+ services since 2016. We have reviewed our subscription offering and appointed a new group head for this area. This year we will conduct initiatives which will very be similar to what we are seeing from OTT players with subscription models that are different to ours, such as in the audiovisual area and content platforms.

In advertising, we have seen an increase of 5.8%, a bit better than the market on 5.0%. In print Vocento has of course outperformed, we have 11 leading regional newspapers and 1 national. At online, ex Classifieds, the increase was only 3.0% as I explained before. For all Vocento online, the rise is 4.0%.

Classifieds are still being affected by the automotive crisis that I already mentioned, even though this is temporary. We expected last year that it would continue until 4Q22. We have no indication otherwise, so that will be when the Classifieds result begins to recover.

EBITDA is flat, at the €3 million level of year, with all the impacts that I have mentioned, including an increase in offline advertising of €1.1mn, €300,000 at online advertising, a fall in the margin on readers of €1.2mn, and the impact of the compensation payments which will generate future savings, especially in our industrial activities. In our print plants and in distribution, there was a €600,000 impact from the rise in the cost of energy. All of this leaves us with flat EBITDA. Joaquín will tell you more about the P&L and cash flow.

Moving to the strategic initiatives that we presented at the end of last year, for the newspapers we are focused on ensuring the supply of paper and not just on cost issues. Supply is guaranteed and has been since the end of the year. We are also opening new avenues and new suppliers to offset the impact of the cost of paper on our accounts. This is the same here as with all publishers. We think that by buying from new suppliers in new countries we can resolve the issue. I would like to point out that we were certainly the first publisher and maybe even the first company in Spain to reject any form of commercial relationship with any company from Russia. One of our suppliers with the best financial offer was a Russian supplier whose contract we have cancelled, so we are looking for alternatives and I think we are in the right direction. We continue to implementation Smart software which will largely replace Google, in order to be free from the influence of a major player in this sector. We want Vocento to be able to operate alone, without a dangerous dependence on any supplier, however big. Here you can see a snapshot of Relevo, our sports media project.

At Classifieds, Digital Kit is performing very well, mainly thanks to our social media programme, linked to Next Generation, the capacity we have for helping SMEs digitalize and our ability to develop our active contracts in a surprisingly positive direction. Premium Leads is helping us expand internationally, with our colleagues from El Comercio in Peru, showing the future direction for advertising. In the agencies, we launched Yellow Brick Road, which is very focused on sports, and the Antrópico agency for social responsibility consultancy, which today is critical for any company that is raising financing.

Let's now discuss our sports project Relevo. The idea came from our competitors. We were convinced that there was a space for us in the sports media which seemed to us to be in a state of neglect. There is a space for us to provide sports information in a new and better way. Our idea has been supported by the professionals who have joined us from other media. We

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

Transcript of Conference Call on 1Q22 results

are trying to build an outstanding team of young professionals who have made names for themselves at our competitors. They are joining this new project, with all the uncertainties that involves, in part because it is backed by Vocento and by our extensive support. But also because they are unhappy with the projects where they were before. They thought there was a clear opportunity in the sports media. For Vocento, this opportunity is even clearer from the business angle. Because it gives us access to new audiences, such as young people, and the chance to renew our readership, which has been a constant demand for us. Now we are developing a niche that is clearly aimed at younger audiences and will allow us to access them in a new way, based on the use of social media to connect with these new and younger readers in new contexts and using new formats. This advertising environment will be completely complementary and is developing rapidly, as you can see from the results of all the media companies that have a sporting asset.

Our first step in developing this project has been to hire the people. In editorial, advertising and digital, everyone works in the same part of the building, elbow-to-elbow on this project. There are no silos for advertising and digital, with journalists in one place and digital developers somewhere else. They are all integrated in this project. Our message to them is that "you have Vocento's coverage, you have a leading technology department available to you, you have Vocento's funding, all the services that we can provide, what we want from you is the ideas you have in your head and which we you could not carry out at your previous companies. We see you as entrepreneurs launching a media project from their garage, a startup with all Vocento's financial and technical resources but in your own style. Offer the readers the product they are looking for in the formats that they want to consume it." And that is what they are doing.

We are very excited and see very clearly that this is the right idea and something that we were missing. We will work a lot with social media. Our Yellow Brick Road agency, part of Tango, is helping a lot in this space. We are modernizing the product for platforms which are not common for general media, such as Twitch, TikTok and Instagram. We will focus a lot on video and on audiovisual content, which is where the advertising is going. We are seeing in 1Q and 4Q a transition from display advertising to video advertising. We will have a lot of video. We are talking to our colleagues from The Athletic, which is a very interesting project, not in terms of a subscription offering, which we think there is no opportunity for in Spain right now, but in terms of their content. Soon you will be hearing more about this.

Our target audience is a young market, which we call Generation Z here but we are not being restrictive. A young audience which is fed up with what it is seeing. If we are right, this audience is asking for something more and we want to be the ones to provide them with it. We will also target the female public with our sports offering. There has not been a lot for them so far. I think that with the team we are assembling, and there are still more people to come, for a total of about 80, the average age will be 33. Imagine the contact that these professionals have with the audiences we are looking for.

The launch will be before the end of 2022. I want to make this clear for any competitor who may be worried, and also because we have heard the launch could be made in 2023. Not at all. Over the course of 2022 we will begin to post on social media, and then on mobile, and finally the complete website will be in full production in 2022. You can see here the financial impact figures that we have prepared. The aim is to achieve more or less recurring EBITDA of €4 million for 2027.

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

Transcript of Conference Call on 1Q22 results

We believe that this is the asset that the group was missing to be able to compete as a major player in the media sector. And we think that now is the right time and the right conditions, and we have the right team for the job.

I hope that I have clarified some of what you will see for yourselves when we go into production. Joaquín Valencia will now provide you with some more detail about the P&L and cash generation.

JOAQUÍN VALENCIA

Thanks Luis. After looking at the future, let's dive back into the past and the last quarter. Luis mentioned some of the main points about EBITDA and I will reiterate a couple of them and discuss the like-for-like of the underlying business, the real EBITDA performance.

If we exclude NET TV and content distribution, we have EBITDA in 2021 of €1.3 million, compared now with €76,000, this quarter we had compensation payments of -€2.5 million, whereas last year we had paid them in December 2020, and if we add the effect of Madrid Fusión of €1.3 million you can see where we are. But more than that, we also have to include the cost of electricity and also of gas, of €900,000, of which €650,000 affects the printing margin. The fall of this margin is because of the increase in the cost of energy and also some increase in the cost of paper, with an impact of only €100,000. The most expensive purchasing of the year is not reflected in consumption yet. We are still consuming cheaper stocks, but this will begin to be seen in the second half of the year. So we are absorbing €900,000 of higher energy costs, plus the costs of launching the sports project, which as the last slide shows amount to €500,000 of costs to be absorbed. So staying flat means staying flat while absorbing all these quite significant impacts. So that is EBITDA.

The P&L is more straightforward. There are no more recurring write downs of goodwill because of the deconsolidation of the film catalogue of Veralia Distribución. At the end of the year when we review our assets there could still be something, we will have to see depending on our forecasts and our auditors, but there is now nothing recurring in terms of write downs. Then there is €9 million from the transaction with NET TV, leaving us with a final result of €3.5 million after almost €5 million of losses in 1Q21.

Moving to Net Financial Debt, Vocento is as strong as normal, ex IFRS 16 we are have gone from net debt of €1.7 million to net cash of €4 million, thanks to the good performance of working capital, We have almost €8.5 million of positive working capital, with good results from receivables vs suppliers. This was €7.3 million in 2021, so we are better than in 2021. All this leads to cash generation of €4.4 million. Comparing like with like, last year we had cash generation of €7 million excluding NET TV, Veralia Distribución and compensation payments which are now included as ordinary personnel expenses, which last year totalled €3.8 million compared with €4.4 million now. So cash generation is very solid and consistent despite the challenges.

Those are the main points. We will now open the conference call to any questions you may have.

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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