OREANDA-NEWS. 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 National Long-term Rating at 'AAA(mex)'. The Rating Outlook is Stable. Fitch also affirmed the company's foreign currency and local currency senior unsecured debt ratings at 'BBB+' and 'AAA(mex)', respectively. A complete list of ratings actions follows at the end of this release.

The ratings reflect Televisa's strong business position as the leading Mexican TV broadcaster and one of the largest media companies in the Spanish-speaking world, and its well-diversified business portfolio, all of which have contributed to its consistent and robust free cash flow (FCF) generation and solid financial profile. Ratings are tempered by the increasing competitive and regulatory pressures in its Mexican broadcasting operation amid market maturity and the company's acquisitive investment strategy which led to its increased leverage compared to historical levels.

KEY RATING DRIVERS

Strong Content Production:

Televisa's high-quality in-house content production has enabled it to maintain the largest broadcasting market position in Mexico, which has given it a stable audience and reliable advertising revenue stream. Also, the company generated 12% of its total revenues from network subscriptions and licensing/syndication businesses during the first half of 2015, as a result of the increased pay TV subscribers globally including Mexico and higher royalties from content sales.

Televisa distributes its content to more than 50 countries, including the United States through a Program License Agreement (PLA) with Univision which provides a stable royalty income until at least 2030. These content sales provide geographic and currency diversification which helps mitigate the risk stemming from the intense competition of the Mexican advertisement industry, as well as, to an extent, unfavorable foreign exchange rate movements.

Manageable Regulatory Pressures:

The competitive landscape of the Mexican media industry will become more intense with a new entrant from 2016 as part of the constitutional sector reform. While Televisa's advertising business profitability could be pressured, the impact should be manageable as its strong content production ability remains intact. It will require significant time and resources for the new entrant to become competitive in content quality against Televisa. Fitch foresees only modest dilution of the company's market share over the medium term. Also, the company's diversified operation largely mitigates this risk as the revenue proportion from advertising represented only 31% of its total sales during 2014, which Fitch expects to further decline towards 25% over the medium term given steady growth in its Sky and Telecommunications segments.

In March 2014, the company was declared as the 'preponderant' operator in the broadcasting sector and unfavorable regulatory measures were imposed. These measures include broadcasting infrastructure sharing and making available the company's over-the-air channels to third party platforms on the same terms and conditions as those offered to its affiliates. Also, a new national broadcasting concession was awarded to Cadena Tres, which will start its operation from 2016.

Positive Diversification:

Solid growth in the company's pay-TV and telecom businesses, partly by acquisitions, has continued to support its diversification from broadcast advertising revenues. Integration of the content production and distribution channels has been the company's key business strategy enabling a more stable operating performance and stronger business profile compared to its regional peers. In the first half of 2015, Televisa generated 61% of its total operating segment income from non-content, with Sky, its direct-to-home (DTH) satellite operation, and Telecommunications segment accounting for 27% and 34% of the total operating segment income, respectively.

Robust Cash Generation:

Fitch forecasts Televisa to maintain its positive FCF generation over the medium term. The company's cash flow from operations is likely to continue to be robust and fully cover its capex, expected to be about MXN21-MXN22 billion in 2015. This level of capex is higher than its average rate of MXN15 billion during 2011-2013 as the company tries to improve its network quality and business position in its Telecommunications segment. Fitch expects the company's dividend payout to remain small at MXN1 billion a year, in line with the previous year's level.

Solid Financial Profile:

Fitch expects Televisa's financial profile to remain in line with the current rating level over the medium term, despite recent modest increase in its leverage, driven by stable positive FCF generation in the absence of any additional sizable debt-funded acquisitions. The company's financial leverage has increased consistently in the past couple of years due to its efforts to consolidate the cable industry in Mexico, with the recent example of the acquisition of Cablevision Red in January 2015. Fitch expects the company's net-debt-to-EBITDA ratio to fall towards 1.5x over the medium term from 1.7x as of June 30, 2015.

RATING SENSITIVITIES

Fitch's expectation of sustained increases in the leverage ratios, driven by high capex and sizable acquisitions, could result in a negative rating action. In addition, any significant loss of market share, or profitability erosion due to the increased competitive pressure in its key Mexican broadcasting operation could also pressure the ratings.

Conversely, further geographical and business diversification away from the Mexican broadcasting market, coupled with consistent free cash flow generations and lower leverage could positively affect the ratings.

LIQUIDITY AND DEBT STRUCTURE

Televisa boasts a sound liquidity profile with cash and temporary investments of about MXN35 billion comfortably covering MXN554 million of short-term debt as of June 30, 2015. The company's debt maturities are well spread and only less than USD200 million will become due by 2016. Televisa has good access to international and domestic capital markets which further bolsters its financial flexibility.

Televisa's debt, excluding financial leases, is mostly composed of its senior unsecured notes with 55% denominated in USD and 45% denominated in MXN. This compares unfavorably with its revenue composition, which is mainly denominated in MXN. Although depreciation of MXN against USD would be negative, the company does not face any significant USD debt maturities until 2018 when USD500 million notes become due.

Key Assumptions

--Mid-to-high single-digits annual revenue growth with stable EBITDA margins of 37%-38% over the medium term;
--Broadcasting market share to gradually decline to below 70% in the long term due to the new entrant;
--No additional sizable acquisitions in the short- to medium-term;
--Positive FCF generation to continue in 2015 and 2016;
--Net leverage to remain comfortably below 2x in 2015 and 2016.

FULL LIST OF RATING ACTIONS

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)';
--USD1 billon 5% senior unsecured notes due 2045 at 'BBB+';
--MXN 10 billion certificados bursatiles due 2020 at 'AAA(mex)';.
--MXN6 billion certificados bursatiles due 2021 at 'AAA(mex);
--MXN5 billion certificados bursatiles due 2022 at AAA(mex).