Grupo Televisa, S.A.B. (NYSE:TV) Q1 2023 Earnings Call Transcript

Grupo Televisa, S.A.B. (NYSE:TV) Q1 2023 Earnings Call Transcript April 26, 2023

Operator: Good morning everyone and welcome to the Grupo Televisa’s First Quarter 2023 Conference Call. Before we begin, I would like to draw your attention to the press release, which explains the use of forward-looking statements and applies to everything discussed in today’s call and in the earnings release. I would now like to turn the call over to Mr. Alfonso de Angoitia, Co-Chief Executive Officer of Grupo Televisa. Please go ahead, sir.

Alfonso de Angoitia: Thank you, Tim. Good morning everyone and thank you for joining us. With me today are Pepe Antonio Gonzalez, CEO of Cable; Luis Malvido, CEO of Sky; and Carlos Phillips, CFO of Grupo Televisa. During the first quarter, Grupo Televisa’s consolidated revenue reached Ps.18.5 million, representing a slight year-on-year decline of 0.5%, while operating segment income reached Ps.7 billion equivalent to a year-on-year decrease of 3.4%. Revenue growth at our residential operations in Cable and our other businesses segment was partially offset by the climbing revenue at Sky and our enterprise operations in Cable. We ended March with a network of 19 million homes after passing around 290,000 new homes during the quarter.

We also delivered more than 290,000 fixed RGU net adds in cable, ending the first quarter with 16 million fixed RGUs. We are confident that our wide geographic footprint and solid competitive position will allow us to keep delivering solid RGU net adds and gaining share of RGUs throughout 2023. Our Cable ARPU has been relatively stable over the last few quarters, but we expect it to increase slightly from the second quarter — in the second quarter due to the price increases we implemented earlier this month. This and our ongoing cable RGU net adds momentum should allow us to accelerate revenue growth at our residential operations. While we continue to face a challenging environment at our enterprise operations in Cable, we are determined to stabilize this business throughout this year.

At Sky, we believe the transformational measures implemented during the second half of 2022 will allow us to gradually achieve sequential operating and financial improvement over the coming quarters. Pepe Antonio and Luis will elaborate on the operating and financial performance of each of our core consolidated segments in their remarks. Now, let me walk you through the TelevisaUnivision’s first quarter results released yesterday morning. The company delivered another solid quarter with revenue of $1.1 billion, growing 6% year-on-year, while EBITDA of $361 million declined by 10% as streaming investments related to the new exclusive content, sporting rights, marketing and technology increased following the launch of advertising and subscription services during the second and third quarters of last year respectively.

It is important to highlight that TelevisaUnivision’s EBITDA decline during the first quarter represents a sequential improvement, driven by lower streaming losses excluding the benefit from non-recurring revenue and EBITDA related to the monetization of the World Cup rights and very strong political advertising due to mid-term elections during the fourth quarter of last year. During the quarter, revenue growth at TelevisaUnivision was driven by solid increase in consolidated advertising and subscription and licensing revenue of 6% and 7% respectively. In the US, advertising revenue increased by 2% year-on-year or 5% excluding political and advocacy where we benefited last year from COVID advocacy related spending. We continue to outperform the market, which according to Magna declined 6% during the first quarter, leaving us with 8 percentage points of outperformance.

This reflects a revamped approach to advertising sales with a broader portfolio of solutions that includes both linear television and streaming. In Mexico, advertising revenue growth of 14% year-on-year was driven by the appreciation of the Mexican peso, strength in both linear and streaming, and the 2023 calendar year upfront where we secured record advertising commitments. In local currency terms, advertising revenue in Mexico increased by 4% year-on-year. Consolidated subscription and licensing revenue increased by 7% driven by growth in both the US and Mexico. This growth was primarily driven by the launch of ViX’s premium subscription streaming Tier. In the US, growth of 5% also reflected subscriber declines in traditional MVPDs in line with the market.

That was partially offset by growth in virtual MVPDs. In Mexico, growth of 13% was driven by the appreciation of the peso modest growth in linear subscribers and higher pricing. In local currency terms, subscription and licensing revenue in Mexico grew by 4% year-on-year. Regarding ViX, we’re extremely proud what we have accomplished since fully launching our two tiered screening platforms last year. Revenue for the first quarter was very strong particularly considering how young the platform is. ViX is already the largest Spanish language streaming platform in the world. Our engagement metrics were equally impressive with 26% growth in total streaming hours per user over the course of the quarter. This is remarkable considering that the comparable period had the World Cup.

To sum-up, we are optimistic with the start of 2023 from both an operating and financial perspective at TelevisaUnivision. We grew revenue across all business lines and geographies. In the US, advertising revenue continues to outpace the market reflecting growing advertising recognition of the power and value of our audiences as they shift share away from an overspent general market. In Mexico, the reach of our linear and streaming platforms is second to none, making them the best choice for advertisers. This was evident in our record setting up front. In addition, ViX’s first full year live represents a very powerful growth engine for our company with very encouraging increases in engagement and consumption great momentum with advertisers and continued narrowing of losses as we progress towards profitability.

Now, let me turn the call over to Pepe Antonio, CEO of Cable.

Pepe Antonio Gonzalez: Thank you very much, Alfonso. We are very happy with the continued momentum in operating metrics and quality of service at our residential operations in Cable during the first quarter of 2023. Let me provide some highlights. Net adds grew by 290,000 fixed RGUs, the fifth consecutive quarter was close to 300,000 RGU net adds. Gross adds totaled 1.3 million fixed RGUs, the highest quarterly figure in the history of the company, even exceeding the COVID lockdown months, while our churn remains stable. The positive trend in broadband RGU net adds continued with 85,000, an uptick over the previous quarter. Although slowing, video continues to be a success story. We added 31,000 video RGUs. A distribution agreement with ViX continues to gain traction.

Our product mix remain stable, triple play packages account for close to two-thirds of our sales. Double play adoption continues to grow, underpinning our broadband net adds. This is our highest margin service, so we keep enhancing its product offering. We expect to pass 900,000 new homes this year, slightly surpassing last year’s mark, while keeping our CapEx at similar levels to last year. In short, the realignment and simplification of our product line, the improvement in quality of service and customer experience, and our home pass expansion plan continue to translate into record levels in almost all of our operating and quality of service metrics. The goal we set a year ago in our residential operation was to regain RGUs and subscriber growth, to solidify our market share, while keeping ARPU stable.

We continue to achieve that. These strong operating metrics in the residential segment have begun to translate into revenue growth acceleration. Moreover, on April 1st, we implemented a price increase, which should contribute to improve our financial indicators. Now, our focus will be on containing churn while maintaining the level of gross adds. Our residential operations revenue growth accelerated to 4% in the first quarter of 2023 from 0.9% in the fourth quarter of 2022. EBITDA increased by 1.4% in the first quarter of 2023 compared to 1% in the fourth quarter of 2022. Enterprise operations which account for roughly 12% of our Cable segment, continued to face headwinds in revenue and profitability. Revenue fell by 4% in the first quarter.

EBITDA figures were also affected. To contain costs, we embarked on a company-wide structural cost cutting program along the following three pillars. The restructuring of our enterprise operation includes; taking advantage of technical synergies between the residential and enterprise operations which are quite important and include mobile MV&E solutions; revamping the product line for middle enterprises that have been historically underserved and offer huge potential. The commercial restructure includes compacting regions and middle management; rationalizing stores on a nationwide basis; optimizing our sales force between in house sales personnel and outside distributors. And the back office and internal organization pillar includes; optimizing office real estate; fleet management; software licensing; and optimizing technical installation materials.

We are also going through a bottom-up revision of all of our CapEx investments and processes. These efforts should contribute to improve our free cash flow generation in the short and medium term. Over the coming quarters, we expect residential RGU net adds to remain at similar levels to those of the last few quarters. While residential operations revenue growth should accelerate due to the price increase. And two, there are still challenges in the enterprise segment, which requires structural changes that are in the process of implementation. Before turning the call back to Alfonso, let me say that we are confident that the expansion to selective locations over the last couple of years, the price increase in our residential operations, and our solid product and quality of service should allow us to keep growing during 2023.

Alfonso de Angoitia: Thank you, Pepe Antonio. Now, let me turn the call over to Luis Malvido, CEO of Sky.

Luis Malvido: Thank you, Alfonso. Let me share with you an update on Sky’s first quarter operational and financial performance. Starting with our DTH business, the new commissions came for our sales force we introduced last September intentionally reduced gross adds to improve sales quality. In this regard, we already seen an increase in customer’s payment rate, which will bring better revenues with less acquisition cost. Altogether, this new scheme is leading to lower CapEx and so higher return on investment. Unfortunately, during the rollout of the process of this new scheme, we experienced some implementation struggles which led to 7,000 postpaid cancellations this quarter. Nevertheless, this is a one-off effect. Furthermore, this quarter, our sales were impacted by a integration of the provision in platform.

This upgrade very close to end of life was required to update our technology and also as a preparation for transition to cloud. This project is nearing completion, and we expect to see significant improvements in our ability to serve our customers more effectively and efficiently. In addition, one of the positive outcomes of the work on promotions was the substantial growth in Blue-to-Go, our OTT business during the quarter. A number of customers that use that OTT for free during the event are now paying a monthly subscription fee that represents a net gain of 75,000 new customers. Moving to new business opportunities, this month we have relaunched the mobile offer with a more competitive value proposition and a new marketing campaign. Besides later this quarter, we will launch the already announced new fixed broadband service in partnership with EC, both under a single family brand, Sky.

Even a small stake of these two massive markets will have tremendous impact on Sky’s financial. Now, let me walk you through our financial results for the quarter. First is worth highlighting that when excluding the effects of the workup and Q1 seasonality, revenues remained stable on a sequential basis for eight consecutive months. Having said this, on a year-on-year comparison, revenues declined 11.7%, reaching PS.4.7 billion driven by the subscriber base drop, partially offset by March 2022 price increase to prepay video customers. Operating segment income decreased by 13.6%, reflecting the before mentioned lower revenues, partially offset by a decline in the cost of goods sold. Operating segment income margin for the quarter was 34.5%. Last year, we developed an ambitious simplification program aimed at improving efficiency and streamlining operation throughout the entire organization.

This program has a projected full year impact of over Ps.600 million and as of March, 47% of the identified savings were implemented are now in a delivery process. On the CapEx front, we invested $42 million during the quarter, which represent an outstanding 23% decrease year-on-year. As I mentioned in our previous call, in 2023, we are targeting a material decline in CapEx compared to 2022. The lower capital intensity is mainly a result of those measures we have taken to improve return on investment. As a result, EBITDA minus CapEx grew 12% year-on-year from Ps.739 million to Ps.832 million this quarter. Before turning back to Alfonso, I’d like to emphasize that we remain confident in our ability to reverse the topline downward trend and achieved year-on-year growth by Q4 this year.

Our confidence is grounded in the comprehensive transformational measures we are implemented, which includes together with stronger product portfolio now adding mobile and fixed broadband service, customer lifetime value management, field service and customer care transformation, change management initiative, and a robust efficiency program.

Alfonso de Angoitia: Thank you, Luis. To wrap-up, Bernardo and I are optimistic about our operating and financial growth prospects for 2023. At TelevisaUnivision, the very strong upfront already announced both in the US and Mexico and the first full year live of our global streaming platform should allow us to deliver solid revenue growth for the third consecutive year, particularly excluding the non-recurring benefits related to the monetization of the World Cup rights in Mexico and Latin America, and very strong political advertising due to midterm elections in the US in 2022. And at Group Televisa, the strong Cable RGU net adds momentum over the last several quarters and price increases implemented earlier this month should contribute to accelerate residential revenue growth of over the coming quarters, partially offsetting inflationary pressures in our cost structure.

In addition, we are implementing a cost-cutting program at our cable operations. Finally, at Sky, we are targeting to reach a sequential inflection point in revenue over the coming quarters, while improving free cash flow generation. Now, we are ready to take your questions. Ken, could you please provide us with instructions for the Q&A?

Q&A Session

Operator: We will now begin the question-and-answer session. Our first question will come from Lucas Chaves with UBS. You may now go ahead.

Lucas Chaves: Hi, good morning everyone. Thanks for having my question. So, my first question is in the last call you talked closed the year in proportion of 17% versus the total cable and how you’re seeing fiber now in the first quarter? Now, how do you take the in 2023? And my second question is regarding the progression, competition in certain regions. So, how do you see the home extension take your place? And where do you see the highest competition? Thank you.

Alfonso de Angoitia: Hi, Lucas. Yes. As to our network, I’ll leave it to Pepe Antonio to expand on this, but what’s very important to focus on is that we have a very competitive network of over 19 million homes passed. We currently have those 19 million out of which two-thirds is either fiber dip or Fiber-to-the-Home and we are already upgrading to DOCSIS 3.1. So, this allows us to provide high speed Internet of up to 1 gig. So, I know we have very competitive network. We have been investing on it for a long time and that’s the result of being able to deliver those speeds. So, we feel very confident about our networks. I’ll leave Pepe Antonio to talk about the network in general in further detail and also about the regions and where we are competing.

Pepe Antonio Gonzalez: Thank you, Alfonso. Well, just to provide further color on what Alfonso has already said, we are very confident on our network. Besides the speeds, let me also say that the quality of our service has increased quite importantly in the last year. Just to put some numbers further in, we expect to close by the end of 2023 with 20% of our network being FTTH, Fiber-to-the-Home and we expect to have fully deployed 31% of the network with DOCSIS 3.1, which allows us to provide 1 gig immediately. But as Alfonso said, overall, our network is either — two-thirds of our network is either Fiber-to-the-Home or Fiber-to-the-Curb, which allows us to quickly upgrade it to 1 giga quite readily. So, we’re very happy with the way our network is functioning both in terms of the mix between FTTH and high-speed HFC and the quality of our service.

Regarding your second question, let me just remind you that in 2021, we had a very large home pass expansion of 2 million homes. But in 2020, we also had 870,000, so almost 900,000 and we planned to expand in 2023 another 900,000. So, this is quite a substantial expansion plan during this — in the last three years — or for the last three years. And what we’re seeing is penetrations in cities between after — about 12 to 18 months, penetration in cities oscillating between 12% and 20%. The highest competition is of course where all of the players are. But there are some cities where we are expanding, where not all of the players are in the same city and we are expanding faster. I hope that was clear in your answer.

Lucas Chaves: Thank you very much. It was very clear. Thank you.

Operator: Our next question will come from with Schroders. You may now go ahead.

Unidentified Analyst: Hello. Thanks for taking my question. It’s on broadband pricing. You mentioned price increases there. Can you elaborate a little bit please kind of what magnitude? If it only applies to new subscribers also to the base and what percentage of the base, if you see more price increases going forward as well? And then related to that, you mentioned that revenue growth in Cable is to partially offset inflationary pressures. So, that’s only partially you said. That means that overall inflation is going to be having the upper hand or how should we interpret that?

Alfonso de Angoitia: Thank you, . Your question, I’ll ask Pepe Antonio to answer it and what has to do with our price increases that took effect in April and also inflationary pressures.

Pepe Antonio Gonzalez: Thank you very much, Alfonso. I should start by saying that we were very cautious with the price increases that we implemented in April 1st. We did not apply the same price increases to all of our plants. The price increases depended on the package and the region to keep us competitive. These are in our competitors. The price increases were oscillated between Ps.30 and Ps.40 equivalent to an increase in ARPU in the low to mid-single-digit range. Since we implemented the price increase three weeks ago, as expected, we have seen a slight increase in churn related to the increase. However, as with past increases, we expect it to be temporary and we have in place a very aggressive retention program. Our sales have remained at the same level, because our — we increased our prices to the base, but not our introductory prices, because our introductory prices for new customers has proven very competitive and we want to keep it that way.

And the environment is all of our – all of the players are very vigilant on prices, so we’re remaining competitive by region and by package. And I think we’re being successful, as I said at the beginning. Our gross adds for the quarter were the highest in the history of the company. So we hope that we can continue on this path moving forward. : Right. Thank you. Just staying on that, do you think that the growth has mainly came from market share gains or from generally new connections?

Pepe Antonio Gonzalez: I’m sorry. Could you repeat your question? I could not understand it.

Unidentified Analyst: Do you believe that your gross adds were mainly from market share gains? In other words from competitors? Or do you think those were generally new connections, first time subscribers?

Pepe Antonio Gonzalez: It’s a mixture of both. It’s a mixture of both. It depends on the market. It depends on the package. As I mentioned at the beginning of the answer, we have an aggressive expansion plan, but we also have 19 million homes passed. So it’s a mixture of both.

Unidentified Analyst: Sure. All right. Okay. The other question was on inflation. Should I repeat that?

Pepe Antonio Gonzalez: I mean, we are on — I mean, the whole world is under inflationary pressure, but inflation is not across the board. So as I said, the increase that we have is in the low to mid-single digits. But at the same time, we are in order to keep our margins and to maintain our profitability, we’re in the middle of a structural cost cutting program to keep our the margins and the profitability going. And so we’re balancing out the inflation vis-à-vis the competition that we face on the ground.

Unidentified Analyst: All right. Thank you.

Operator: Our next question will come from Carlos de Legarreta with ITAU. You may now go ahead.

Carlos de Legarreta : Thank you. Good morning. This is Carlos de Legarreta from ITAU. Just two quick questions. First, if you could provide an update of the mobile active users base is for ViX? And secondly, for Sky, after the clean-up in the subscriber base, if you can provide a sense of what is the current mix between prepaid and postpaid users that will be useful? Thank you.

Alfonso de Angoitia : Yes. Thank you, Carlos, for your question. I guess as to ViX, I would like to say that on the AVOD side, it has been in the market for three quarters. And we’re very encouraged as user and engagement metrics have been exceeding our initial expectations. Of course, the Qatar World Cup was a major contributor to the success of ViX in Mexico and Spanish speaking Latin America. As you know, we had the rights for some exclusive gains in other programs. And so this event, the World Cup was a key event to attract millions of monthly active users to the platform. During the World Cup, the service saw peak streaming activity with more than 5 million devices for a single game with zero technical issues, which was a huge accomplishment for us, because it’s a new platform.

And being such a young service, of course, not experiencing any technical difficulties with 5 million devices being activated for a single game was great. We’re very happy to confirm, as I mentioned before, that ViX is now the largest Spanish language streaming app in the world in such a short period of time. Now as to your question regarding KPIs for AVOD and network services and in general for ViX, we believe it’s too early to share more details the service has been live only for, I mean, for less than a year. And we would like to have more time in the market to have more evidence regarding potential trends. So we want to be really, really serious about the information that we provide in respect to the service. It’s a very important platform for us and a very important business.

We are very encouraged about what we are seeing. As I mentioned, I guess twice now, ViX is now the largest Spanish language streaming up in the world. But it’s too young to be predicting or to be sharing information, which could be misleading. As to your second question, it has to do with Sky. I’ll ask Luis to answer it.

Luis Malvido : Yes. Thank you, Alfonso. On currently, at the end of March, the mix of prepaid, postpaid DTH is 70:30 70 prepaid, but postpaid represents around 40% of DTH revenues. And this is by the end of the quarter as I said. But as — also as EC bid, we implemented a price increase. We announced it already. It would be effective 1st of May. And this price increase goes from Ps.20 to Ps.50, making an average of 5.5% onwards. So this composition will change in the future.

Operator: Our next question will come from Phani Kanumuri with HSBC. You may now go ahead.

Phani Kanumuri : Yes. Thanks for taking my questions. My first question is on the possibility of increasing your buybacks. Considering the share price at Ps.17 and your high cash balance do you see here? Are you discussing anything on increasing your buyback fund or any capital location that you’re discussing on? That would be helpful. I’ll ask the second question later.

Alfonso de Angoitia: Yes. Phani, hi. Thank you for your question. As to buybacks, we have been buying back stock. We have been subject to blackouts especially last, I mean, towards the end of last year, because of all the Mercado situation, but Carlos can share with us the details of what we have been doing last year and this year.

Carlos Phillips : Yes, Phani. Well, just like to mention that in terms of capital allocation. As you know, our priority for now is to reduce leverage. But Alfonso mentioned, we have been doing share buybacks to take advantage the undervalued price of our stock. Since last year, we spent around $75 million in buybacks This is approximately a little bit more than 70 million CPOs since August, which is approximately 2.3% of our shares outstanding. Going forward, we’re likely to keep repurchasing shares to take advantage of the share price, but we’ll keep doing it opportunistically.

Phani Kanumuri : Sure. The second question is pertaining to the profitability target at TV UN that a TelevisaUnivision has yesterday stated that they are delaying the streaming profit, did they expect the streaming profit to be delayed by couple of quarters? How does it impact Televisa in terms of the leverage targets or the expectation of dividends from TelevisaUnivision going forward?

Alfonso de Angoitia: Yes. Hi, Phani again. I guess you’re referring to what was announced yesterday in respect to profitability at ViX. And I would say that basically our thesis regarding the two tier streaming ecosystems is providing to be — it’s proving to be correct. As you might remember, we launched a two tier streaming ecosystem. First, the free tier has been the main source of net subscribers for the premium tier. And this quarter, it delivered about 60% of those subscribers, up from 50% over the last two quarters. And we finally had enough time in the market to evidence some churn data. It’s still early, but about 20% of our gross subscribers were reactivations from users who churned into the free tier, which we reacquired, while monetizing them from advertising.

So while our thesis around the product design has been validated, and we’re happy about that, we have modified how we market that product to consumers. I would say that, from the start, we marketed the two tiers as separate brands, ViX and VIX+. And given that the product design of ViX is unlike anything else that we have seen in the market. Consumers didn’t understand that we had two tiers in the same app and had the impression that there were two separate products. So this countered our efforts to realize the benefits of a two-tier ecosystem within one app. And what we have done then is we have transitioned to one brand in March, in which we materially reduced marketing for VIX+ to simplify ViX. So we’re now ramping up a new campaign for the single ViX brand one brand, two tiers.

Therefore, I would say that the performance of the market will take time to optimize. So this very important change has effectively evolved the timeline on our subscriber growth path. To answer your question, this change combined with, of course, the macro driven softness in the ad market will likely push the breakeven of our overall streaming business back a couple of quarters, which would be remarkable in any event. We are continuing to see the quarter-over-quarter sequential improvement in streaming losses that we projected, including in this quarter where we are following a blockbuster World Cup, and absorbing the seasonally soft first quarter ad market. So as a result of the change we made in the marketing strategy and the product itself, we will see a small delay, but we’re seeing quarter-over-quarter sequential improvement.

So we’re very happy about that, even though profitability will happen a little later than we originally predicted.

Phani Kanumuri : And how does this impact your plans, let’s say, in terms of leverage or in terms of the event that we expect from TelevisaUnivision going forward?

Alfonso de Angoitia: Yes, of course we’re planning on deleveraging TelevisaUnivision, and that’s part of the plan. And of course, as to the dividend question you asked, we’re now focused on investing in our platform, investing in the growth of ViX. That is a huge bet for us. We believe that because of all the assets that we have, including the library, the IP, including the factory of content in Mexico, which is the most prolific and efficient factory of content in Spanish in the world. And all the assets that we have, including our advertising and marketing capacity in both Mexico, the United States and Latin America, we believe that this is a pretty sure bet and we’re very confident about its success. So what I would say is that, we’re not focused on paying dividends. Rather, we’re focused on investing in this platform and making this a real success for us.

Phani Kanumuri : Yes. Okay. Thank you.

Alfonso de Angoitia: Thank you.

Operator: Our last question will come from Luca Brendon with Bank of America. You may now go ahead.

Luca Brendon: Hi, good afternoon everyone. Thank you for taking my question. So I have two questions here. The first of them is related to Sky. With all the new programs and measures that you have been announcing for the division, what can we expect in terms of timelines for us to see some sort of user-based stabilization, or how can we think about NetApps going forward? And then the second question, if you could give us an update, or any changes in timeline for the potential spinoff of the other businesses. Thank you.

Alfonso de Angoitia: Thank you, Luca, for your question. I’ll ask Luis to go into further detail, but what I can tell you is that we are seeing already a stabilization in the subscriber and user base at Sky. And so I’ll ask Luis to give you the details. And as to your second question, I’ll ask Carlos Phillips to answer it. Luis?

Luis Malvido: Yes, thank you for the question. These are two different situations. First is what we see on DTH, and second is what we see on new products. So on DTH, after the clean-up of the base and after improving quality of sales, we’re starting to see a fast decline in a quarter-to-quarter churn in prepaid, in particular, in the US from this quarter to next quarter, then we’ll use a minimum of 15%. So this is very good news, and it could imply a trend going forward. This is still far from our gross assets, so it will take us some time to stabilize prepaid, but at least the loss of base will be gradually reduced. On the postpaid side, again, this quarter we had a one-off effect that I just explained. We’re going back to previous levels of the workup.

So that means 60,000 to 65,000 churn customers or block customers in the next quarter, which is going back to a flat customer base in post-paid. Flat customer base with reducing churn will imply not only base stabilization, but also revenues. The second part of the answer is the new businesses. On one hand, cellular phone services are offered only to postpaid customers. And you know that this service is not only adding stickiness to the product, but also adding revenue. So this will also help our customer base to be more loyal and to reduce churn. So it’s another tool to reduce churn. And finally, launching broadband, we have around 30 to 40% of our postpaid base where we are able to offer a free fixed broadband solution. That means that, that most of the churn we are having these days is because these customers are addressed by our competition with cable and those customers prefer to have a broadband.

Now we are in a condition from a few weeks from now, we will be in conditions to offer to our own customers this solution. So, this will be another tool of protecting customer base and reducing churn. So all together will not only help us to stabilize base, particularly post-pay base looking forward, but also growing in postpaid and stabilizing in prepaid. We will see this in post-paid this year and stabilizing probably next year in prepaid.

Alfonso de Angoitia: And Carlos, can you answer the second question, please?

Carlos Phillips: Yes, Luca. In terms of your question about the spin-off, as you know we announced the spin-off late last year. Since that time we’ve been working on our internal reorganization and procedures to execute the spin-off. But the timing is really more subject to regulatory approvals. We’ve been working on filing the appropriate documentation. We expect to have approval from the regulators in the coming months, but we don’t have an exact date yet. As soon as we have it, we’ll inform the market, but that’s the point at which we are today. We’re still expecting it, obviously, in the coming months.

Luca Brendon: Okay. Very clear. Thank you.

Operator: This concludes our question and answer session. I would like to turn the conference back over to Mr. Alfonso de Angoitia for any closing remarks.

Alfonso de Angoitia: Yes, I’d like to thank everyone for joining us today. As always, feel free to contact us with any additional questions you may have. Thank you.

Operator: The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.