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- 1. DIRECTV Latin America 2008 Media Fall Preview Bruce Churchill President DIRECTV Latin America
- 2. 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.
- 3. DIRECTV Latin America The 4th largest Pay-TV platform outside the USA with 5.5M subscribers Regions DTVLA Brazil PanAmericana Mexico Ownership 74% 100% 41% Partner Globo N/A Televisa Brand SKY DIRECTV SKY Subscribers 1. 7M 2.1M 1.7M
- 4. 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
- 5. 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
- 6. 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
- 7. DIRECTV Latin America Strategy Superior Customer Service Combination of local and regional call centers: Bogota, Cali Developed alternative communication channels (e.g. Mobile) Improve “self-care” services Brazil subscribers contacts evolution IVR, IVR, 26% 29% IVR, Phone, 20% Phone, 49% 45% Internet, Phone, Internet, Internet, 26% 69% 25% 11% Jan ‘08 Jun ‘08 Dec ’08 (E)
- 8. 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
- 9. Pre-pago DIRECTV High familiarity with Pre-paid Completely cash based Favorable economics Minimum net SAC No bad debt Minimum on-going subscriber costs 80+% reactivation behavior after first 3 months in Venezuela Self Enter PIN ## Self Enter PIN Installation to activate Installation to activate Buy kit Enjoy DIRECTV Buy scratch card experience
- 10. 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
- 11. Key Metrics Update Revised Outlook Outlook 2007 2008 2006 Outlook Actual 2009 Subscribers (000's) 2,711 ~3,100 3,279 ~ 4,000 ARPU (US$) $ 41.71 ~$46.00 $ 48.33 ~$48 ~$55 Monthly churn 1.45% ~1.35% 1.38% ~1.3% ~1.6% SAC (US$) $ 371 ~$ 380 $ 361 ~$395 Expect to meet or exceed most key 2009 targets by end of 2008
- 12. Financial Information Update Revised Outlook Outlook (in US$ millions) 2007 2008 2006 Outlook Actual 2009 Revenue $ 1,013 ~$1,600 $ 1,719 ~ $2,000 ~$2,200+ OPBDA $ 244 ~$350 $ 394 ~ $600 ~$625+ Operating profit $ 79 ~$120 $ 159 ~ $400 CapEx SAC related $ 130 ~$175 $ 296 Non-SAC related 49 ~50 40 Sub-Total $ 179 ~$225 $ 336 ~ $250 ~$450 ~$250 Cash flow before interest and taxes $ 0 ~$165 $ 140 ~ $400 Expect to meet or exceed most key 2009 targets by end of 2008
- 13. DTVLA Valuation Attributable DTVLA Ownership % Subscribers Subscribers 100% 2.1M 2.1M PanAmericana 74% 1.7M 1.3M Brazil 41% 1.7M 0.7M Mexico 5.5M 4.1M Total 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
- 14. DTVLA Valuation Carving out DTVLA value 5-Sep-2008 DTV trading value $26.57 1 Less avg. target price for DTVLA ($5.20) or 10x (Price/Free Cash Flow2) $21.37 Implied DTV-US trading value DTVUS versus Competitors (Price/Free Cash Flow ) 2 23x Time Warner Cable 18x Comcast 12x Dish Network 10x DTV-US Notes 1. DTVLA target price is derived from an average of several analysts 2. 2009 Consensus
- 16. DTVLA Non-GAAP Financial Reconciliations Reconciliation of Operating Profit Before Depreciation and Amortization to Operating Profit Twelve Months Ended December 31, 2008 Outlook 2007 2006 (Dollars in Millions) Operating Profit Before Depreciation and Amortization ~625+ $394 $244 Subtract: Depreciation and amortization expense ~225+ 235 165 Operating Profit ~$400 $159 $79 Revenue ~$2,200 $1,719 $1,013 OPBDA M argin ~28% 22.9% 24.1% DIRECTV Latin America Reconciliation of Cash Flow Before Interest and Taxes and Free Cash Flow to Net Cash Provided by Operating Activities Twelve Months Ended December 31, 2008 Outlook 2007 2006 (Dollars in Millions) 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 *Outlook data combines interest received, interest paid and income taxes paid under income taxes paid