2000 Second Quarter Results
TVAzteca
Gerardo Molina (525) 325 2840
July 24, 2000
TV Azteca posted strong operating results in 2Q00, with 21.7%, 210.8%, and 61.3% increases in sales, operating profit
and EBITDA, respectively. Sales grew as a reflection of a real 20% increase in advertising rates, as well as higher
commercial audience levels. This quarter included advertising revenues from the federal election campaigns, Todito.com
and Unefon. Also supporting the above, the company’s prime-time audience share rose to a 9-quarter high of 37%.
Operating profit grew explosively due to changes in accounting policies associated with the amortization of television
concessions. EBITDA margin rose strongly from 33.8% in 2Q99 to 44.8% in 2Q00, due to strong performance in
revenues and also as a reflection of a pattern of stabilization in production costs (down 2.9%). Despite strict sales and
administrative expense controls enforced throughout the company, these expenses rose 14.8% largely due to financial and
legal advisory services associated with the litigation process with NBC. Financial costs shifted from income of Ps 27.2
million in 2Q99 to expense of Ps 352.2 million in 2Q00. The effective tax rate rose from 20.7% in 2Q99 to 61.9% in
2Q00, as a result of the implementation of Bulletin D-4. The company recorded extraordinary expenses due to both the
settlement paid to NBC after both companies agreed to end the arbitration, and charges associated with Unefon,
Todito.com and El Sitio. As such, TV Azteca posted net losses of Ps 434.0 million, as compared to net income of Ps
129.3 million in 2Q99. The company’s outlook remains positive. We feel revenue growth is sustainable, supported by
increases in rates and higher demand for advertising. Stronger benefits are also expected to come from the company’s
efforts to improve production cost and expense control efficiencies. In addition, progress made in the Unefon telephony
project and Todito.com Internet project should have a positive impact on TV Azteca’s results going forward. Still, we feel
that, for the time being, TV Azteca’s share price already reflects the company’s favorable prospects, as the stock is
trading at EV/EBITDA and P/BV multiples of 16.1x and 6.9x, respectively.
July 24, 2000 Price :
52 Week Range:
Shares Outstanding:
Market Capitalization:
Ps 7.88
Ps 10.12 To 2.29
3.0 Billion
US$ 2.5 Billion
Price/Book:
ROE
ROA
Enterprise Value:
INCOME STATEMENT (thousands of constant pesos as of June 30, 2000)
1H99
Margin
1H00
Margin
Net Sales
100.0% 2,495,514
100.0%
2,089,912
Cost of Goods Sold
48.8% 1,107,000
44.4%
1,020,000
Gross Profit
51.2% 1,388,514
55.6%
1,069,912
Operating Expenses
Depreciation
368,000
459,432
Operating Profit
6.9x
-23.3%
9.4%
US$ 3.1 Billion
P/E on June T12
P/NCE T12
P/EBITDA T12
EV/EBITDA T12
-29.3x
-54.6x
13.3x
16.1x
Change
19.4%
8.5%
29.8%
2Q99
1,122,627
561,000
561,627
Margin
100.0%
50.0%
50.0%
2Q00
1,366,359
545,000
821,359
Margin
100.0%
39.9%
60.1%
Change
21.7%
-2.9%
46.2%
17.6%
22.0%
401,000
278,841
16.1%
11.2%
9.0%
-39.3%
182,000
228,464
16.2%
20.4%
209,000
142,587
15.3%
10.4%
14.8%
-37.6%
242,480
11.6%
708,673
28.4%
192.3%
151,163
13.5%
469,771
34.4%
210.8%
Integral Cost of Financing
Interest Expense
Interest Income
Foreign Exchange Loss
Monetary Loss
(264,143)
413,494
111,888
(361,539)
(204,210)
-12.6%
19.8%
5.4%
-17.3%
-9.8%
396,881
489,209
125,084
77,133
(44,377)
15.9%
19.6%
5.0%
3.1%
-1.8%
#N/A
18.3%
11.8%
#N/A
-78.3%
(27,195)
230,510
78,479
(116,180)
(63,045)
-2.4%
20.5%
7.0%
-10.3%
-5.6%
352,211
296,328
56,275
128,647
(16,488)
25.8%
21.7%
4.1%
9.4%
-1.2%
#N/A
28.6%
-28.3%
#N/A
-73.8%
Other Financial Expenses
Pretax Income
Taxes
120,240
386,383
31,673
5.8%
18.5%
1.5%
52,165
259,627
107,369
2.1%
10.4%
4.3%
-56.6%
-32.8%
239.0%
27,930
150,428
31,204
2.5%
13.4%
2.8%
24,138
93,422
57,808
1.8%
6.8%
4.2%
-13.6%
-37.9%
85.3%
Non-Cons. Subsidiaries
Extraordinary Items (gains)
Minority Interest
Net Income
Earnings Per Share
(7,659)
0
(10,374)
357,425
0.119
-0.4%
0.0%
-0.5%
17.1%
(173,878)
286,031
(4,391)
(303,260)
(0.101)
-7.0%
11.5%
-0.2%
-12.2%
#N/A
#N/A
-57.7%
#N/A
5,758
0
(4,273)
129,255
0.043
0.5%
0.0%
-0.4%
11.5%
(183,998)
286,031
(390)
(434,025)
(0.144)
-13.5%
20.9%
0.0%
-31.8%
#N/A
#N/A
-90.9%
#N/A
EBITDA
EBITDA Per Share
701,912
0.234
33.6%
987,514
0.329
39.6%
40.7%
379,627
0.126
33.8%
612,358
0.204
44.8%
61.3%
BALANCE SHEET (thousands of constant pesos as of June 30, 2000)
Jun-99
% of T.A.
Jun-00
% of T.A.
Total Assets
100.0% 16,382,118
100.0%
13,332,409
Cash & Equivalents
4.5% 1,236,791
7.5%
594,186
Other Current Assets
38.7% 3,420,343
20.9%
5,159,215
Long Term
1.0% 4,168,157
25.4%
135,378
Fixed (Net)
21.3% 2,484,945
15.2%
2,843,403
Deferred
29.6% 4,414,181
26.9%
3,947,464
Other
4.9%
4.0%
652,763
657,701
Total Liabilities
73.8% 12,919,354
78.9%
9,839,544
Short Term Debt
9.0%
3.1%
1,205,370
507,577
Other Current Liabilities
8.3% 1,090,236
6.7%
1,107,254
Long Term Debt
36.3% 5,678,706
34.7%
4,839,899
Other Liabilities
20.2% 5,642,835
34.4%
2,687,021
Shareholders Equity
26.2% 3,462,764
21.1%
3,492,865
Minority Interest
0.3%
0.1%
43,689
14,129
FINANCIAL ANALYSIS
Current Ratio
Short Term Debt to Total Debt
Foreign Liab. to Total Liab.
Net Debt to Total Equity
Total Liab. to Total Equity
Jun-99
Jun-00
2.5x
2.9x
19.9%
8.2%
66.7%
53.1%
156.1%
142.9%
281.7%
373.1%
1H99
1H00
A/R Turnover (days)
230
127
Inventory Turnover (days)
189
110
A/P Turnover (days)
55
63
WC net of debt to Sales
111%
71%
Interest Coverage Ratio
2.0x
2.3x
Total Debt to annualized EBITDA
4.3x
3.1x
ENTERPRISE VALUE (EV) = Mkt cap. + Net Debt + Minority Int.
NCE = Net income + Monetary Loss + Fx Loss + Depreciation
ROA=T12m Op Profit to Avg. Assets; ROE=T12m Net Profit to Avg. Equity
The information contained herein has been obtained from sources that we believe to be reliable, but we make no representation as to its accuracy or completeness. Neither CASA DE BOLSA
BANORTE, S.A. DE C.V. nor AFIN SECURITIES INTERNATIONAL accepts any liability for any losses arising from any use of this report or its contents.
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2000 Second Quarter Results
TVAzteca
Operating Results
Strong revenue performance was boosted by higher advertising rates (over 20% in real terms) and higher commercial audience share levels, which
more than offset the 1% decline in TV Azteca’s sellable airtime usage. It is important to note that total revenues included advertising sales
associated with the federal elections (Ps 105 million), Todito.com (Ps 41 million) and Unefon (Ps 4.8 million), which accounted for 7.7%, 3.0%
and 0.4% of total revenues, respectively. However, TV Azteca recorded a 50% drop in revenues from programming exports (which represented
around 3% of total revenues), reflecting the company’s decision to limit sales to US companies, as it is eyeing a possible acquisition of an equity
stake in a US Spanish-speaking channel in exchange for programming. In addition, prime-time commercial audience share rose to the highest level
posted over the past nine quarters, ending at 37%, that is 11% above 1Q00 levels of 33%.
The company continued to focus on its policy of maintaining programming, production and broadcasting costs under strict control. As
such, these costs declined 2.9%, supported by an 11% reduction in internally produced programming costs, which is consistent with the
8.6% drop in the number of hours produced by the company. However, sales and administrative expenses were up 14.8%, as a result of
financial and legal advisory services associated with the litigation process with NBC, and the aforementioned project to acquire an
equity stake in a US Spanish-speaking TV channel. In addition, the company posted higher traveling and personnel expenses. Operating
profit continued to show explosive growth (up 210.8%), due to changes in accounting policies associated with the amortization of TV
concessions, which resulted in 37.6% lower depreciation. For its part, EBITDA rose 61.3%, thanks to strong performance in revenues
and the pattern of stabilization observed in production costs.
Financing Activities
TV Azteca’s integral cost of financing shifted from income of Ps 27.2 million in 2Q99 to expense of Ps 352.2 million in 2Q00, due mainly to FX
losses derived from the peso devaluation, but also to 57.9% higher net interest expense and 73.8% lower monetary gains. It is important to note
that the aforementioned increase in interest expense was due to the recognition of other financial expense totaling Ps 105 million associated with a
mark-to-market valuation of 2.5% of El Sitio’s equity (owned by TV Azteca). On the other hand, monetary gains dropped as a result of lower
inflation, but also due to an account receivable of US$ 200 million charged to Unefon in late 1999 derived from the advertising agreement with
that company.
As a result of the implementation of Bulletin D-4, the effective tax rate rose from 20.7% in 2Q99 to 61.9% in 2Q00. The company also recorded
extraordinary expenses of Ps 286.0 million for the settlement paid to NBC after both companies agreed to end the arbitration. This amount already
includes tax savings to be generated from this transaction (around Ps 155 million). In addition, TV Azteca recorded charges of approximately Ps
153 million, associated with losses posted at Unefon and Todito.com. As a result of the above factors, the company posted net losses of Ps 434.0
million, which compares unfavorably to net income of Ps 129.3 million in 2Q99.
Leverage rose marginally from 361.9% in 2Q99 to 373.1% in 2Q00, as a result of a slight 2.6% increase in interest-bearing liabilities. It
is important to note, however, that TV Azteca’s liabilities carry favorable terms and rates. Interest coverage improved slightly vs. 2Q99
to 2.3x, but remained unchanged as compared to 1Q00.
Outlook
We believe TV Azteca continues to have a positive outlook, and that revenue growth is sustainable, supported by increases in rates, higher
demand for advertising due to TV Azteca’s broadcasting of the Olympics, and stronger economic activity. We also expect stronger benefits to
come from the company’s efforts to improve production cost efficiencies and expense controls. So far, TV Azteca’s prime-time audience
share levels have recovered gradually over the past twelve months, and we hope that the company will continue to make an effort to maintain
this pace, as this should lead to stronger revenues. In addition, progress made in the Unefon telephony project and Todito.com Internet project
should have a positive impact on TV Azteca’s results going forward. Unefon is expected to generate additional revenues as nationwide
coverage increases and the company starts boosting the mobile telephony business, in addition to fixed wireless telephony. As regards the
possible acquisition of an equity stake in a US channel, the company is still in negotiations and no further details have been disclosed, although
we are expecting news on this issue within the next few weeks. Regarding the current conflict between TV Azteca and Canal 40, the company
stated that no agreement has been reached, but that they are still working towards a solution. In this respect, it is worth mentioning that Canal
40’s revenues accounted for less than 1% of total sales and equaled under 0.5% of the company’s cash flow in 2Q00. We believe that, for the
time being, TV Azteca’s share price already incorporates the company’s positive outlook. In terms of valuation, the stock is trading at
EV/EBITDA and P/BV multiples of 16.1x and 6.9x, respectively.
Gerardo Molina [email protected]
The information contained herein has been obtained from sources that we believe to be reliable, but we make no representation as to its accuracy or completeness. Neither CASA DE BOLSA
BANORTE, S.A. DE C.V. nor AFIN SECURITIES INTERNATIONAL accepts any liability for any losses arising from any use of this report or its contents.
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