DIRECTV Latin America2008 Media Fall Preview
Bruce Churchill President DIRECTV Latin America
Cautionary Statement and Non-GAAP Financials
Cautionary Statement:This presentation includes certain statements that may be considered to be, “forward-looking statements”within the meaning of the Private Securities Litigation Reform Act of 1995 (“PSLRA”). These forward-looking statements generally can be identified by words such as “believe,” “expect,” “estimate,” “anticipate,”“intend,” “plan,” “foresee,” “project” or other similar words or phrases. Similarly, statements that describe our objectives, plans or goals also are forward-looking statements. All of these forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results or from those expressed or implied by the relevant forward-looking statement. Such risks and uncertainties include, but are not limited to: economic conditions; product demand and market acceptance; ability to improve customer service or create new and desirable programming content and interactive features; government action; political, economic and social uncertainties in many Latin American countries in which DTVLA operates; foreign currency exchange rates; competition; the outcome of legal proceedings; ability to achieve cost reductions; ability to renew programming contracts under favorable terms; technological risk; limitations on access to distribution channels reliance on satellites as a significant part of our infrastructure and we may face other risks described from time to time in periodic reports filed by us with the SEC.
Non-GAAP Financials:This presentation includes financial measures that are not determined in accordance with GAAP, such as Operating Profit before Depreciation and Amortization, Free Cash Flow and Cash Flow before Interest and Taxes. These financial measures should be used in conjunction with other GAAP financial measures and are not presented as an alternative measure of operating results, as determined in accordance with GAAP. DIRECTV management uses these measures to evaluate the profitability of DIRECTV U.S.’ subscriber base for the purpose of allocating resources to discretionary activities such as adding new subscribers, upgrading and retaining existing subscribers and for capital expenditures. A reconciliation of these measures to the nearest GAAP measure is posted on our website and is included at the end of this presentation package.
DIRECTV Latin America
RegionsDTVLA
Partner Globo N/A Televisa
Brand SKY DIRECTV SKY
Brazil PanAmericana Mexico
Ownership 74% 100% 41%
Subscribers 1. 7M 2.1M 1.7M
The 4th largest Pay-TV platform outside the USA with 5.5M subscribers
DIRECTV Latin America Market
Low Pay-TV penetration throughout the regions Brazil – 11%, PanAmericana – 36%, Mexico – 28%
Like USA, cable is our main competitor
Digital roll-out only in major urban markets
Bundle product offers (data, voice, wireless) gaining traction: Telmex, Telefonica
Advanced products (DVR) only in infancy
Nascent HD content offerings
DIRECTV Latin America Strategy
Adapt DIRECTV US roadmap to Latin America
Content and technology leader
Customer service superiority
Push “whole home experience”
Expand Pre-paid offer into new regions
Introduce HD and secure leadership position
DIRECTV Latin America Strategy
Content Leadership
Sports and exclusivity rights where possible (e.g. La Liga, EPL,
Local Soccer)
Partnership where strategic value exists (e.g. Televisa, Globo,
TyC)
Concerts, Special Events
Leverage technology leadership of DIRECTV US
Speed to market, superior product and lower cost
DIRECTV Latin America Strategy
Superior Customer ServiceCombination of local and regional call centers: Bogota, Cali
Developed alternative communication channels (e.g. Mobile)
Improve “self-care” services
Brazil subscribers contacts evolution
Phone, 49%
IVR, 26%
Internet, 25%
Phone, 69%
IVR, 20%
Internet, 11%
Phone, 45%
IVR, 29%
Internet, 26%
Jan ‘08 Jun ‘08 Dec ’08 (E)
DIRECTV Latin America Strategy
Push “whole home experience”
Increase DVR and multiple set-up boxes penetration
Expand broadband alliances
Expand Pre-paid offer into new regions
Brazil, Mexico, Colombia, Puerto Rico, Peru and Chile
Introduce HD and secure leadership position
Launch in PanAmericana – Q4 2008
Launch in Brazil – Q2 2009
Launch in Mexico – Q4 2009
Pre-pago DIRECTV
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High familiarity with Pre-paidCompletely cash basedFavorable economicsMinimum net SAC
No bad debtMinimum on-going subscriber costs80+% reactivation behavior after first 3 months in Venezuela
DTVLA - HD Launch
PanAmericana will launch in Q4 2008
12-15 channels in Puerto Rico and 3-5 channels in the rest of the
regions
Sky Brasil
Expected to launch in Q2 2009
5-10 channels package including top programming providers
Sky Mexico
Expected to launch in Q4 2009
13-18 channels package including Mexican soccer league, MLB,
Spanish soccer league and PPV
Outlook 2006 Outlook Actual 2009
Subscribers (000's) 2,711 ~3,100 3,279 ~ 4,000
ARPU (US$) 41.71$ ~$46.00 48.33$ ~$48
Monthly churn 1.45% ~1.35% 1.38% ~1.3%
SAC (US$) 371$ ~$ 380 361$ ~$395
2007RevisedOutlook
2008
~$55
~1.6%
Key Metrics Update
Expect to meet or exceed most key 2009 targets by end of 2008
Financial Information Update
Expect to meet or exceed most key 2009 targets by end of 2008
(in US$ millions) Outlook 2006 Outlook Actual 2009
Revenue 1,013$ ~$1,600 1,719$ ~ $2,000OPBDA 244$ ~$350 394$ ~ $600Operating profit 79$ ~$120 159$ ~ $400
CapExSAC related 130$ ~$175 296$ Non-SAC related 49 ~50 40 Sub-Total 179$ ~$225 336$ ~ $250
Cash flow before interest and taxes 0$ ~$165 140$ ~ $400
2007RevisedOutlook
2008
~$450
~$250
~$2,200+~$625+
DTVLA Valuation
DTVLA Ownership % Subscribers Attributable Subscribers
PanAmericana 100% 2.1M 2.1MBrazil 74% 1.7M 1.3MMexico 41% 1.7M 0.7MTotal 5.5M 4.1M
4.1M attributable subscribers at $1,400 = ~$5.7B or ~$5.201 of DTV market value
Notes
1. DTVLA target price is derived from an average of several analysts
DTVLA Valuation
Carving out DTVLA value
DTVUS versus Competitors (Price/Free Cash Flow )
Notes
1. DTVLA target price is derived from an average of several analysts
2. 2009 Consensus
Time Warner Cable 23xComcast 18xDish Network 12xDTV-US 10x
1
2
2
5-Sep-2008
DTV trading value $26.57
Less avg. target price for DTVLA ($5.20)
Implied DTV-US trading value $21.37 or 10x (Price/Free Cash Flow )
DTVLA Non-GAAP Financial Reconciliations
2008 Outlook 2007 2006
Operating Profit Before Depreciation and Amortization ~625+ $394 $244 Subtract: Depreciation and amortization expense ~225+ 235 165Operating Profit ~$400 $159 $79 Revenue ~$2,200 $1,719 $1,013 OPBDA Margin ~28% 22.9% 24.1%
2008 Outlook 2007 2006
Cash Flow Before Interest and Taxes ~$250 $140 $0 Adjustments: Cash paid for interest (27) (12) Interest income 18 16 Income taxes paid * ~(100) (51) (14)Add Cash Paid For:
Property and equipment ~450 336 175 Net Cash Provided by Operating Activities ~$600 $416 $165
Twelve Months EndedDecember 31,
*Outlook data combines interest received, interest paid and income taxes paid under income taxes paid
Reconciliation of Operating Profit Before Depreciation and Amortization to Operating Profit
Twelve Months EndedDecember 31,
(Dollars in Millions)
Reconciliation of Cash Flow Before Interest and Taxes and Free Cash Flow to Net Cash Provided by Operating Activities
DIRECTV Latin America
(Dollars in Millions)