MONTERREY, Mexico--(BUSINESS WIRE)--Fitch Ratings has affirmed Grupo Televisa, S.A.B.'s (Televisa) foreign and local currency Issuer Default Ratings (IDRs) at 'BBB+' as well as the company's long-term national scale rating at 'AAA(mex)'. A complete list of related rating actions follows at the end of this release. The Rating Outlook is Stable.
Televisa's 'BBB+' ratings continue to reflect the company's strong business position as the leading Mexican TV Broadcaster and one of the largest media companies in the Spanish-speaking world, diversified media and telecommunications portfolio, solid financial position characterized by its robust free cash flow generation and liquidity, as well as extended debt maturity profile. Televisa's ratings factor in the company's exposure to economic cycles, strong competition across business segments and increased regulation in Mexico.
The ratings incorporate the company's strategy to expand its business lines through organic growth and acquisitions, which include the recent cash investment in convertible debt of MXN7,000 million and debt instruments (approximately MXN2,500 million) of Tenedora Ares, S.A.P.I. de C.V. (ARES), owner of 51% of Grupo Cable TV, S.A. de C.V. (Cablecom), as well as the investments in Univision Communications, Inc. (Univision) and Mexican mobile operator Iusacell. The company's growth strategy continues focused in the Mexican telecommunications sector and in the US TV broadcasting segment. If Televisa receives regulatory approval to convert its recent investment in ARES into equity, its business position and cash generation will strengthen, while maintaining a stable credit profile.
KEY RATING DRIVERS
Robust Cash Flow from Content Segment:
Televisa's high quality in-house content production has allowed it to maintain its leading position as the largest television broadcaster in Mexico, with stable audience and market shares in the national advertising industry. In addition, the company distributes its content to more than 50 countries, more importantly in the United States (U.S.) through a Program License Agreement (PLA) with Univision in place at least until 2025 and as long as Telvisa remains as a shareholder, which provides additional revenue at minimal cost, strengthening its geographic and currency diversification. Television advertising business in Mexico is in a mature stage and is the largest mass media. The company's network subscription and licensing and syndication businesses are the main growth drivers for this segment, as a result of increased pay TV subscribers in Mexico and higher royalties from Univision.
Economic Activity Correlation and Regulatory Environment:
The ratings consider the exposure to domestic economic activity and increased regulation going forward as a result of the telecommunications constitutional reform approved in the summer of 2013. For Televisa, the impact on its operations could come from the obligation to implement must-offer and must-carry provisions for over-the-air content broadcasted by Pay TV operators, affecting the company's programming segment revenues, as well as the proposal of at least two additional open TV national networks and the authorization of additional foreign investment participation in the industry. On the other hand, Televisa's DTH (Sky) and Cable and Telecom segments could face a more favorable competitive environment given its relative position within the industry. Fitch believes that Televisa's cash generation allows it to maintain a stable financial profile and provides flexibility to manage its leverage levels and debt structure.
Diversifying Operations:
Televisa's growth in the telecom and Pay TV businesses has resulted in increased diversification from the Content segment revenues (includes Advertising, Network Subscription Revenue and Licensing and Syndication). This diversified business portfolio underpins the company's stable operating and financial performance. Integration between content production and solid distribution channels is strategic for the company, which in turn strengthens the company's business profile compared to its peers in other countries. For the last twelve month (LTM) period ended Jun. 30, 2013, the company generated EBITDA (according to Fitch, Consolidated Operating Income plus Depreciation and Amortization) of MXN27.7 billion, from which the Content segment represented 53%, Sky 24%, and Cable and Telecom 21%. Growth in Televisa's Sky and Cable and Telecom business units has maintain a strong pace, with double digit percentage increases in the past two years, while advertising had a modest growth between 1.5 and 3%. This could result in lower operating margins with sustained CFO generation.
Strong Cash Generation:
Televisa's FCF continues robust and sufficient to finance growth and maintenance capex. During the past three years (2010-2012), Televisa invested in Capex approximately USD850 million on average per year, mainly to increase and improve its market and business position in the DTH and Cable and Telecom segments, as well as investments required in the broadcasting assets for the digitalization program, among others. In the same period, given this important capex deployment, dividend payments have remained at the minimum authorized representing approximately USD80 million per year. For 2013 the company's capex guidance is USD1.0 billion and Fitch believes the company's financial position and expected cash flow for the year will be sufficient to complete it.
Solid Financial Profile:
The ratings incorporate for the long term a total debt to EBITDA ratio of close to 2.0x and net debt to EBITDA between 1.0x -1.5x. For the LTM ended Jun. 30 2013, total debt including satellite leases to EBITDA (calculated by Fitch) was 2.3x compared to those registered at the end of 2012 and 2011 of 2.2x and 2.4x, respectively. During LTM Jun 2013 net debt (considering total debt - cash and temporary investments) to EBITDA was 1.3x, from 1.3x and 1.5x in FY2012 and FY2011, respectively. Fitch expects Televisa will generate robust cash flow from operations in the next years as business investments mature, in addition to relatively stable debt levels.
Total debt at the end of Jun. 30 2013 is USD5.0 billion, an increase from USD4.5 billion at year-end 2012 as a result of the recent issuance of MXN6.5 billion notes in May 2013, which proceeds are intended to be used to refinance debt and fund capex and other investments. Short-debt of USD67 million is very manageable and large debt maturities are scheduled until 2016, when approximately USD700 million come due. Televisa's liquidity position remains strong with cash and temporary investments as of Jun. 30, 2013 of USD2.1 billion and an extended debt maturity profile. Fitch factors in Televisa's ratings that the company's leverage will remain within its expectations, on a pro-forma basis considering the recent Cablecom transaction.
RATINGS SENSITIVITY
Expectations of sustained increases in leverage could pressure Televisa's credit quality. On the other hand, international and business diversification in conjunction with constant strengthening of free cash flow and reductions in leverage levels could be seen as positive for the ratings.
In conjunction with the affirmation of Televisa's IDRs at 'BBB+' and the long-term national scale rating at 'AAA(mex)', Fitch affirmed the following ratings:
--USD500 million 6% senior unsecured notes due 2018 at 'BBB+';
--USD600 million 6.625% senior unsecured notes due 2025 at 'BBB+';
--USD300 million 8.5% senior unsecured notes due 2032 at 'BBB+';
--MXN4.5 billion 8.49% senior unsecured notes due 2037 at 'BBB+/AAA(mex)';
--USD600 million 6.625% senior unsecured notes due 2040 at 'BBB+';
--MXN6.5 billion 7.25% senior unsecured notes due 2043 at 'BBB+/AAA(mex)';
--MXN10 billion certificados bursatiles due 2020 at 'AAA(mex)'.
Additional information is available at 'www.fitchratings.com'
Applicable Criteria and Related Research:
--'Corporate Rating Methodology' (Aug. 5, 2013);
--'National Ratings Criteria' (Jan. 19, 2011).
Applicable Criteria and Related Research:
Corporate Rating Methodology - Effective from 8 August 2012 - 5 August 2013
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=684460
National Ratings Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=595885
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=799081
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