Televisa reports fourth quarter loss

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MEXICO CITY -- DTH operations pushed Televisa's results into the red for the fourth quarter and are expected to remain a financial drain for several years.

Televisa reported a net loss of $42.6 million in the fourth quarter versus a net profit of $24 million a year earlier, the company reported March 6. Quarterly revenue rose slightly to $526 million from $517 million.

For the full-year, it recorded a net profit of $732 million, including a net gain from the sale of its interest in PanAmSat and some other one time items, versus a net loss of $84.9 million for 1996. Revenue for the year rose 6.3% to $1.74 billion from $1.63 billion in 1996.

Operating results were in line with expectations, though analyst Tim Baker of SBC Warburg Dillon Read noted that fourth quarter revenue growth did not compare well with much higher increases at TV Azteca, though the rival broadcaster is in a dif ferent stage of growth.

DTH was the main culprit for the losses, and the Sky service is going to be a very long-term investment, analysts said.

DTH joint ventures are expected to experience substantial net losses and negative cash flow over at least the next several years, Televisa stated. Sky just launched in Spain in September and in Colombia in December. And though Televisa pledged to aggressively cut costs as part of its "Televisa 2000," it is not moving as quickly as analysts would like.

For the year, Televisa took almost $110 million in charges for cutting costs - most of which went to severance packages. Under the program announced May 1997, Televisa has trimmed real estate, rental and some promotion expenses; cut staff, charitable donations, and amenities; reduced overtime payments; and frozen some executive salaries.

It expects to take another aggregate charge of about $10 million in the first two quarters of this year for cost-cutting moves. The cuts -- to be completed by mid-1998 -- are expected to create annualized cost savings of about $100 million, Televisa said.

But production costs continue to climb, offset ting some savings, said one analyst. "Earnings quality deteriorated in the fourth quarter," agreed Mr. Baker. "Operating costs went down by just 8.4% for the quarter and about 7.5% for the year -- there is potential here but they have been slow to implement it so far."

The arrival of new CFO Gilberto Perez Alonso later in March could speed things up, he suggested.

Azteca is far leaner, analysts said, and announced on March 4 it was cutting 12% of its staff.

Televisa has won new audience, as evidenced by higher ratings. "It's a good step but they do not guarantee solid financial results," warned one analyst.

During a conference call with analysts and investors, Televisa executives said they were studying options on how they sell ad time. "I suspect they are getting closer to making that decision [to sell ratings points]," said Baker.

Copyright March 1998, Crain Communications Inc.

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