PRISA embarks on a new era

The success of its capital increase and debt refinancing gives PRISA margin to focus on exploiting the growth potential of its education and media divisions

PRISA’s financial horizon is looking brighter as it obtains the breathing space it needs to accelerate the growth of its businesses. The company has closed, at the start of 2018, two key operations: debt restructuring and a major capital increase. The capital increase and consequent consolidation of the balance sheet will allow the group, which publishes EL PAÍS, to embark on a new phase focused on creating value for its shareholders and which is set to pivot around education and media.

On January 16, PRISA informed the National Securities Market Commission (CNMV) that it had reached an agreement with creditors to refinance and amend the terms of its financial commitments. This agreement provides for the extension of debt maturity for five years. In addition, the agreement does not provide for mandatory redemptions until December 2020, with the subsequent repayment schedule adjusted to reflect cash generation by the businesses. Extension of the payments is crucial because, under the previous contractual framework, the company would have had to pay its lenders EUR 956 million in December this year.

The renegotiation of debt was subject to the execution of the capital increase approved by the extraordinary shareholders’ meeting held last November. This operation was successfully completed this week with the admission to trading of 469 million shares. The price set for the new shares was 1.2 euros (0.94 euros par value and issue costs of 0.26 euros for each), meaning that the capital increase has enabled the group to raise funds worth EUR 563 million. The agreement with creditors sets out that, of this amount, 450 million are to be used to repay debt. The remaining 113 million will be allocated to invest in the development of the different units of the group, with special attention being paid to the educational area.

In addition to slashing debt with the proceeds of the capital increase, PRISA is also set to enjoy a windfall from the sale of Media Capital. The company last year reached an agreement with Altice, which valued the Portuguese audiovisual division at 321 million euros. The closing of the transaction is still pending approval from Portuguese competition authorities. The company expects to get the likely green light for the divestment during the second quarter of 2018. The refinancing agreement with creditors had not taken into account the sale of Media Capital. 

Deleveraging

The capital increase and the sale of Media Capital will generate a reduction in debt of EUR 771 million, leaving net debt at 661.2 million. This significant reduction of financial commitments will lower leverage from 5.9 times gross operating profit (Ebitda) to just 2.8 times. Generally the market considers that a debt ratio of less than three times EBITDA can be borne by a company without compromising its growth potential in the medium term.

The enthusiasm of creditors for PRISA’s project was matched by investors and shareholders. The operation was a resounding success, with demand oversubscribed by more than 7.63 times that of shares offered to the market. In addition, the commitment by the owners of the company to the subscription went from representing 53% of capital to stand at around 70%.

This message of optimism has been reflected in share performance. Share price is up 25% since January 29 when the new preferential subscription rights started trading. This buoyant market performance has enabled the company to close the week with a market capitalization of EUR 986 million euros, compared to a figure that barely reached EUR 220 million at the end of 2017.

This process began last December after the replacement of Juan Luis Cebrián as executive chairman of PRISA and the election of a new board of directors. Manuel Polanco is the non-executive chairman of the company, while the CEO Manuel Mirat takes on all executive functions of the organization. The Board of Directors also approved the composition of a new steering committee with the addition of Pedro García Guillén as CEO of PRISA Radio, Alejandro Martínez Peón as CEO of PRISA Noticias, Augusto Delkáder as editorial director, Jorge Rivera as Director of Communications and Institutional relations and Marta Bretos as director of Talent Management. Also part of the committee are Xavier Pujol (secretary general and chief legal officer), Guillermo Juanes (CFO), Rosa Cullell (CEO of Media Capital) and Miguel Angel Cayuela (CEO of Santillana). The various committees that make up the Board have given a strong impetus to the development of corporate governance practices. Cebrián remains on as president of El País.

Creation of value

Though the company plans to continue on the path of austerity of recent years, an improved capital structure will allow the management team to focus on squeezing the full potential out of the company’s different business lines, with particular emphasis on the process of digitization. In this regard, PRISA is currently developing a new strategic plan. The goal is that, once financial uncertainties have been put behind the company, investors will value the group's different divisions, which have shown a track record of consistently stable revenues in recent years despite the difficult economic environment.

Santillana, which accounts for about 75% of the operating result of the group, will remain the keystone of this new stage. Present in 22 countries, its activities cover a wide range of products ranging from publishing textbooks and language-learning books to digital learning systems.

PRISA controls 75% of Santillana, while the remaining 25% is held by the fund Victoria Capital Partners. The strategic focus of the group in the area of ​​education – which in 2016 posted revenues of 637 million, 47% of the total – is to maintain and strengthen its leading position, while benefiting from the macroeconomic recovery in Latin America and expanding into new potential growth segments. 79% of sales in the area of ​​education is generated abroad, with major contributions from markets such as Brazil (27%) and Mexico (12%). While the sale of textbooks may be affected by economic developments, PRISA stresses that its presence in emerging markets shows enormous potential for growth since in these countries spending on education does not reach the $ 20 per student compared to $ 130 in OECD countries, meaning that the scope for improvement is high. Learning systems Sistema UNO and COMPARTIR are the pillars of Santillana’s strategy.

Additionally in education, the company is committed to continuing apace with the digital transformation of traditional textbooks through comprehensive and integrated learning solutions, and by strengthening its product offering, focusing on quality, and improving efficiencies and cost control.

Alongside Santillana, the other strategic pillar of PRISA is its media division, which has  high-value assets all of which are leaders in their respective segments, such as EL PAÍS, SER, AS, Cinco Dias, Radio Caracol and Los 40.

PRISA Radio is one of the largest Spanish-language radio groups in the world with approximately 23 million listeners and more than 1,000 stations, either fully owned or operated via subsidiaries and associates, spread across 13 countries. The Radio division accounts for 21% of Group revenues and 17% of EBITDA. The strategic approach in this area is to maintain leadership, benefiting from an improved economic environment and the expected growth of the advertising market. In addition, the company is meeting the challenge of deepening the digital transformation from an analog model to one of multimedia digital content. It will thus be in a position to exploit the potential of digital revenues in the Internet market. The company is also committed to strengthening its product portfolio through the expansion of its global brands such as Los 40 – all while keeping costs under control.

The press division, which accounts for 18% of operating income, is the other arm of PRISA media. In this segment, newspaper EL PAÍS maintains its lead as the Number One digital portal for news in Spanish, worldwide, as well as Number One in Spain. The press sector, currently undergoing complete digital transformation, is shrinking – with a large number of traditional news titles competing with digital media, against a backdrop of continuous changes in patterns of news consumption by users. Continued investing is key if one is to successfully embrace technological change. In this context, PRISA explained in the prospectus that accompanied its capital increase, that it is increasingly  important "to respond with a quality product, to offer new services and specialized multimedia content, to develop distribution partnerships, to internationalize brands, to launch mixed business models (free / paid), and to innovate in advertising formats."

Source: El País