Televisa aims ax at $270 mil by 2000

MEXICO CITY — Televisa announced a three-year, $270 million cost-reduction program at an investor conference in New York Wednesday, as the Mexican conglom unveiled its long-awaited Televisa 2000 business plan.

Thanks to the streamlining — which includes a freeze in executive salaries, reduced overtime payments, and a new performance-based compensation policy — Televisa forecasts a leap in cash-flow margins from 15.2% (the 1996 figure) to more than 25%.

Analysts responded enthusiastically to the presentation, which was preceded by weeks of investor uncertainty and rumors of tensions among senior management after the April 16 death of former topper Emilio Azcarraga Milmo.

“They presented a united management front, and they played off one another well,” said ING Barings’ Marla Marron of the half-dozen execs who hosted the conference.

Marron said Televisa’s plan to cut operating expenses by $90 million for each of the next three years was credible, adding: “There’s a lot of fat there.”

“Ninety million dollars was quite a surprise — I was expecting more like $50 million,” said Niraj Gupta of Schroder Wertheim. “This will have a significant impact on shareholder value creation over the next three years.”

Although layoffs to date have reached 14% of 1994 employee levels — when the staff count stood at 23,000 — the passing of Azcarraga Milmo has effectively allowed Televisa to start rationalizing costs at the executive level on an unprecedented scale.

New Televisa boss Emilio Azcarraga Jean told more than 200 investors and stock analysts that Televisa would no longer function as a family-run concern, but as an institutionalized company, with greater management accountability.

However, he has still to announce the members of its much-awaited executive committee, which is expected handle the top-level decision-making previously carried out in autocratic fashion by Azcarraga Milmo.

Matt Harrigan of JP Morgan forecasts that with the cost reductions, cash flow (Ebitda) should climb more than 40% to around $300 million this year — and to as much as $440 million in 1998.

Televisa said the program would mean a one-time cost of $80 million, chiefly to cover severance pay.

Televisa announced it expected top-line growth would be fueled by Mexico’s improving economy (likely to grow 4% or 5% this year), new revenue from its recently launched satcaster partnership Sky Latin America, and programming exports.

Chief operating officer Jaime Davila told investors that the steady loss of audience share to rival TV Azteca had been reversed in recent weeks, and that further projected ratings gains would lead to a huge upfront advertising haul in the fall.

Thanks to the sale of most of its 40.5% stake in PanAmSat, Televisa is in the process of retiring about $450 million of debt. The company projects this will lead to an interest expense of $135 million to $145 million this year, against $240 million and $245 million in 1995 and 1996, respectively.

On the downside, analysts remain cautious on projections for Sky, whose Televisa-led Mexico platform is officially forecast to break even in year four of operations. Schroder’s Gupta said year five or six would be more likely, though he added that operating losses should not be large.

To date, Sky Mexico has signed up 30,000 subscribers and is believed to be catching up earlier-launched rival Galaxy Latin America.

In the face of a slight down market on Wall Street, Televisa ADRs zoomed 9.3% to close at $27.88 Wednesday.

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