Saturday, August 13

SQUIRREL MEDIA: We are a technology company that participates in the entire value scale in the communication sector

To start our talk with Pablo Pereiro Lage, President and CEO of Squirrel Media, we ask him for a review of what Squirrel Media is, why the corporate image and name have changed, going from Vértice 360 ​​to Squirrel Media and who is now Squirrel Media.

The name change is due to a change in reality. Vértice 360 ​​was a reality above all a benchmark in the world or content sector, especially from the point of view of a conglomerate of Spanish producers and distributors that operated in the Spanish market. And currently Squirrel Media is a technology company that participates in the entire value scale in the communication sector, from the media part (in the advertising and media field) and above all with that technical and technological area giving a very different approach to the one that had initially and enhancing the distribution and production part. This is not only for Spain now, but at a transversal level for many other countries.

Also with a name that is very significant that represents a lot who we are. We compete with large elephants, metaphorically speaking, and we coexist with them, but being much more agile, providing a more technological field, with a philosophy and strategy of the present and anchored in the past. Therefore, we coexist in a world of elephants and with a series of conditions and qualities that allow us an abnormal organic and inorganic growth. This is because we do not want to be an elephant, but a squirrel (Squirrel). With a different approach, much more technological in the IT sector, much more up-to-date, which takes the best of the traditional media world, but abandoning, if you allow me, the burdens that are affecting the growth, viability and national and international development of the traditional media projects.

For a retail investor approaching the company for the first time, how would you explain what you do in each of the three areas? What do you do in technology, what do you do in advertising, what do you do in audiovisual production? And what would your competition or similar competitors be?

I believe that today if I had to say a comparable at the Group level or our strategy, our comparable would be Vivendi. If we go by segmentations, in the part of Media as a pillar, we have two main trunks. The first is advertising and there our comparable stock market, global leader by business volume would be WPP. But there would be others, like Havas. In this sense, what we do through different brands is media consulting, advertising consulting, buying, selling and marketing of advertising spaces, events, communication … If we go to the media part, on television, With the acquisition that we signed a few days ago with Vocento (NET TV), we have become the third national free-to-air television operator, with our comparable Mediaset being the first and Antena3 the second. If we talk about Pay TV segmentation, our comparable could be the big best. If we speak on the platform part, our comparable would be a Netflix or Amazon on the television part. In the radio part, comparable would be Prisa, in the field of digital exterior a comparable would be JCDecaux … Our group does not discriminate offline or online, we have a 360 product. If we go to the content pillar, we have production companies and distributors and now We carry out this business at a transversal level and we have comparables such as any of the studios such as Disney, Warner Media … And, finally, the technical or technological part that is a transversal endowment of what we do. We are a technology and media company, and that is super important because we are currently in an industrial and technological revolution. Today to be average you have to be technological because we are in a continuous industrial revolution. And there we have comparables from companies of service very modest even telecommunications companies like Telefónica Servicios Audiovisuales. In short, a comparable in the services area would be Mediapro. Because we have from the companies of playout or continuity, control of realization, distribution, coordination, we are official distributors of the main big brothers in the satellite world and fiber.

These are some of the comparables out there. Each of the segmentations has a comparable but what we do in the end is the participation in the entire value scale. We are not only a free-to-air television, we are not only a television on PayTV, we are not only a platform, we are not only an analog radio, we are not only a digital radio, we are not only a media, communication agency, not only We are an event agency, we not only provide all audiovisual services, we are not only a company that has teleports … in the end we are one of the very few companies, perhaps with Vivendi, which has the vocation to participate in the entire value scale in the world of communication, increasing the first line with its own investment and managing the investment of third parties and above all, optimizing and participating in the entire cost line. We promote and seek multi-utility and we also do that multi-utility in multiple countries, even in those where large big brothers they do not enter.

You have a vocation to continue growing, but where do you want to focus that growth?

The four most important markets for us today are Italy, Spain, Brazil and Mexico. All the investments we make and the strategy is carefully thought out. We work and we are a player a benchmark in the Latin American world and being a leader in the Hispanic world allows you to have a very interesting correlation in the US It is a gateway to the US world and hence the leap to the Anglo-Saxon world. I believe that our natural leap has to be, in addition to enhancing our investments in these markets, the Anglo-Saxon world. Because that will give us coverage from the point of view of generation and distribution and consequently of the expansion and scalability of our product. It will allow us to be a player global. It would allow us an international market share that could reach an 80% market share from the current 30%.

What would be the synergies in the UK?

In the Anglo-Saxon world, there are two parts. In the UK there are great realities where you can enter an Anglo-Saxon market in a transversal way and it allows you a much more optimal opportunity cost than the North American one. There are several good “squirrels” in the UK that are doing very well, whose integration could be more affordable to our current reality. And that doesn’t have to be a finalist. The fact of integrating a UK company in 2022 is not a substitute for integrating something in the North American field tomorrow. UK is a large enough market to have a physical and daily presence there. Therefore, it is not a substitute and I believe that both in the future of a playerAs a global content generator and distributor, you have to be in Los Angeles and London.

And all this inorganic growth, how are you going to finance it?

Well, the example of the recent signing with Vocento is a pretty clear example of what our inorganic growth will be like. We have financial strength and a growing generation. It is true that we have businesses, such as distribution in general and cinematographic in particular, that require a very important CAPEX from you. Although, it is very capital intensive, but you have a very long period to collect those fruits. The company also has other areas that are not at all capital intensive. We have significant positive flows. The logical thing is to do it as we have been doing it. Leveraging is fine, financial and resource optimization is fine, but we come from a pandemic environment and we have continued hiring, we have not done either ERTES or ERES. We continue in the possibility of real leverage, reaching a good leverage would be close to 3v EBITDA, the idea is to make 50% equity, 50% bank financing. However, I think that a leverage that could be said to be optimal for our company would be 70 or 75 million of bank financing and at the moment we are light years away from those numbers, so I would say that we still have a long way to go.

That is the financing that we like. Long-term financing, very controlled with very important returns and that in the end we continue to generate cash and long-term benefits. And when we reach that financial-banking optimization, we will have to go find and participate in that other financial world that provides us with operations that give us that opportunity for new integrations, always in the inorganic field.

The integrations they have made in 2020 and 21 have deteriorated margins a bit. In the 2022 budget, they will continue to deteriorate, but in the longer term, will these margins recover?

Our integrations are extremely careful on margins. The one of Vocento, of invoicing to EBITDA we can be speaking of 28% and of invoicing to benefit of 22%. That in a sector where it is difficult to grow. We do not buy billing. In our group, not all companies are necessarily generators of margin and we are in the construction of a technological Group that implies CAPEX needs and in the creation of an international scalability that implies that in the creation phase the margins have to be reduce to later flourish, I estimate that in about two years. Now the margins especially in 2020/21 have had to contract to later grow. However, our volumes continue to be abnormally high and we are getting large and we will inevitably grow, and that scalability, that demand, that market leadership and that consolidation of our project will lead us to very high margins.

All this growth that you expect requires, as you tell us, large investments, how much investment do you estimate that you will need for the next few years?

Speaking for example of the Content area, which is the unit with the most important CAPEX. We can invest a specific CAPEX for a project, but we start investing on a contract and at that time we start to sell on a contract as well. The contracts made, the industry generally advances them. There is already a contractualization and if necessary a monetization before the project begins to take place. We now have many contracts worth seven digits that we have not monetized and that is one of the many avenues that we have.

You operate in more than 100 countries, how do you hedge the currency risk?

It depends on each unit, but the unit that we have the most internationalized and the unit that has been operating for the longest time at a global level by business volume is the Media area and within this, the advertising area. We do not have a currency contingency there because our clients are mainly European. We close contracts in euros, regardless of the currency. And, on the other hand, we revert the exchange rates to our clients by compliance of the company. Additionally there are internal mechanisms with our partners by virtue of which we have different safety nets to preset and cushion possible falls.

What is the company’s strategic objective in acquiring all of Vocento’s stakes in NET TV and Veralia Distribución and how can it affect the year-end?

The impact of this operation for the end of the year is none, as long as the consolidation will take place in the month of January. Therefore, we will see full consolidation for next year. We would therefore begin to consolidate in 2022 with the fundamentals that we had said, around a turnover of 26 or 27 million euros, more or less 8 million of projected EBITDA and more or less around 6 million of projected net profit for 2022.

The company’s goal is, without a doubt, to be a global content generator and distributor. And, above all, that our contents pass to our own windows that give us the necessary independence to grow consistently. Therefore, we invest in our own windows that give us the possibility of our own monetization, they give us the possibility of independence, maintenance and scalability of the company.

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