Grupo Clarín S.A. (GCLA) Earnings Call Transcript & Summary

Good morning. My name is Nicki, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Grupo Clarín Fourth Quarter and Full Year 2019 Earnings Conference Call. [Operator Instructions] This call is for investors and analysts only; therefore, questions from the media will not be taken. If you are a member of the media and have questions, please contact i-advize following the call. I will now introduce our speakers. On behalf of Grupo Clarín, we have Mr. Agustín Medina Manson, Head of Investor Relations. Additionally, Iván Acevedo, Controller; and Marcelo Boncagni, Audit Manager, will also be available for today's Q&A session. The team will be discussing the results as per the earnings release distributed last Monday. If you did not receive the report or needed any assistance during today's call, please contact i-advize in New York at (212) 406-3695 or the company in Buenos Aires at 54-11-4309-7215. Clarín also posted a webcast presentation to follow that goes along with the quarterly results. This presentation can be found at www.grupoclarin.com/ir. Comments made by management may contain forward-looking statements about Grupo Clarín's future performance, plans, strategies and targets. Such statements are subject to uncertainties that could cause Grupo Clarín's actual results and operations to differ materially. Such uncertainties include, but not limited to, the effects of new or ongoing industry and economic regulations, possible changes in demand for Grupo Clarín's products and services and the effects of more general factors, such as changes in general market, economic or in regulatory conditions. Grupo Clarín's earnings report, which is also available on the company's website, also outlines the various factors that may affect forward-looking statements management may make during the session. Please refer to the disclaimer in the earnings report or presentation as well. It is now my pleasure to turn the call over to Mr. Agustín Medina Manson for this presentation. Please go ahead, sir.

Thank you, Nicki. Good morning, and thank you for joining us. It is a pleasure to present the results today. Let me quickly outline the agenda for today's call. We will start with a brief macro overview, followed by the discussion of the company results and financial position. Later, we will review the current ownership structure of the company. Having gone through the agenda, I will now go over a brief macro description. On Page 4, as we've seen in our previous call, the Argentine economy elapsed in a complex macroeconomic environment, marked by a strong peso devaluation, fiscal and monetary imbalances, a huge weakness of the financial program and high levels of uncertainty, especially derived from the presidential elections. During the first half of the year, the previous administration led by Mr. Macri was focused on trying to close the fiscal gap and preserve the foreign exchange stability. But the activity continue to show weak signals of recovery with exchange rate pressures and high levels of inflation that led the previous administration to announce new measures in order to contain the complex scenario. However, the primary election results celebrated in August 2019, in which the ticket led by Alberto Fernández, obtained 47% of the vote, while the previous administration ticket obtained only 32%, resulted in higher volatility, a significant draining of the central bank reserves, a huge devaluation of local currency and rising inflation, especially derived from a high local pass-through effect. As a result, a series of new extraordinary measures were launched by Mr. Macri's administration, such as the extension of the maturity for short-term note and the reinforcement of the restriction to operate on the FX market. In October 2019, Alberto Fernández and Cristina Fernández de Kirchner, leaders of the ticket Frente de Todos, were chosen as the new President and Vice President of Argentina, respectively, confirming the primary elections results. Regarding the current administration, among its main measures and new emergency economy law, the social solidarity and production reactivation was approved at the end of 2019 in order to stabilize the economy, defending the more vulnerable sectors from the fiscal adjustment and was mainly focused on increasing the tax collection as well as social spending and imposing a 30% tax on FX purchases. In addition, the economy ministry has initiated a new debt renegotiation in order to recover the sustainability of the debt and avoid any change of disruptive events -- any chance of disruptive events. On an annual basis, quarterly inflation was 52% at the end of December 2019, showing the highest level since 1991. On the reference right side, it decreased to 55% in December 2019 compared to 59% in December of 2018, still in a context with pressures on interest rates. Regarding the activity, quarterly GDP closed the year with a 1% fall on an annual basis. And it is expected to decrease slightly above 2% in 2019, closing with a fall for third consecutive year. Expectation for 2020 continue to show a difficult environment that will mainly depend not only on the negotiation ability of the government to restructure the sovereign debt and recover the activity growth but also on the improvement of the financial and social conditions on the international front. Having gone through the macro overview, let me continue with the company performance. Please turn to Slide 6, so that we may briefly review some of Grupo Clarín financial highlights for 2019. Revenues grew by 32% to ARS 21 billion, lower than the 53.8% inflation rate. So with the inflation adjustment, revenue decreases by 14% from ARS 29.6 billion to ARS 25.4 billion. EBITDA in nominal terms increased by 18% to ARS 1.3 billion, mainly driven by a better performance in the Broadcasting and Programming segment that was partially offset by a negative EBITDA in the 2 other segments. Taking into account the effect of inflation, EBITDA dropped 17%. The net income for the period attributable to equity shareholders in real pesos was negative and amounted to ARS 1.5 billion. On Page 7, we show that the impact of inflation accounting generated lower revenues and cost in real terms, comparing full year '19 versus full year 2018. Revenue decreased more than cost, so it's generating an EBITDA margin contraction. In spite of the actions taken by the company to gain operational efficiency and manage its cost structure, the economic downturn for the second consecutive year had a strong impact on the income of all business segments -- across all business segments. Moving on to Page 8. Revenues for the fourth quarter 2019 grew 26% to ARS 5.9 billion, and EBITDA was negative and decreased to ARS 38 million in historical currency. Considering inflation adjustment, revenue decreased by 18% and negative EBITDA of -- and we have a negative EBITDA of ARS 17 billion. The net loss for the fourth quarter '19 was ARS 658 million in constant currency. We will discuss the breakdown by segment shortly, but first, I would like to review the debt financial position. As per Slide 9, the total debt as of December 2019, increased to ARS 1.8 billion due to higher bank overdraft and financial loans with a net cash position of ARS 341 million. The total company has an average debt cost of approximately 4.6% in U.S. dollar and 63.1% in pesos, and the average maturity is around 1.5 years. Approximately 78% of our total debt is in U.S. dollar and 53% of our cash and equivalents are in U.S. dollar. Overall, we continue to show a very healthy debt profile with no leverage. Moving on to the segment breakdown. We begin with the Broadcasting and Programming division on Slide 11. As we mentioned in our previous call, the economic downturn impacted our company across all business segments, and this segment performed well considering the current macroeconomic conditions. Revenue decreased by 19% to ARS 2.9 billion in constant pesos in fourth quarter '19 compared to ARS 3.6 billion last year. This was due to lower advertising revenues in constant pesos, mainly in Channel 13 and in our Radio businesses. Cost of sales decreased by 20% to ARS 1.9 billion. The decrease was mainly caused by the effect of restatement in salaries and programming costs for the quarter comparing with -- for the fourth quarter '18 versus fourth quarter '19. Selling and administrative expenses decreased by 9% to ARS 626 million in fourth quarter '19 compared to the ARS 689 million in fourth quarter 2018. The decline was primarily the result of the greater effect of restatement of the salaries, marketing expenses and fees for services of fourth quarter '18 versus fourth quarter '19 in order to be expressed in homogeneous currencies as of December 2019. During this period, adjusted EBITDA totaled ARS 2 billion, and EBITDA margin stood at 17.4%, a 10% -- 10 basis points margin expansion, thanks to the cost and expenses efficiency. On Slide 18 (sic) [ 12 ], in terms of audience share. On Channel 13, the prime time audience increased by 25% and total time increased by 4%. This was the result of a more appealing content, a better soap opera and early beginning of Dancing with the Stars. The more attractive content that improved our audience performance has allowed us to maintain approximately a 40% advertising market share and continue -- and lead us to continue as a market leader. Now let's move on Printing and Publishing on the next slide. Total revenues decreased by 16% to ARS 2.9 billion in fourth quarter '19, mainly as a result of lower circulation and advertising revenues in real terms. In spite of a solid customer subscription base, circulation decreased in real terms due to the price adjustment was lower than inflation. Also, during the fourth quarter 2019, advertising revenues in current peso decreased by approximately -- increased by approximately 30% compared to fourth quarter 2018, that is lower than inflation. Total adjusted EBITDA for the fourth quarter '19 was negative ARS 127 million. The decrease is the result of lower revenues. We continue stabilizing our operation and developing strategic actions with the expectation of improving the company's long-term sustainability. Cost of sales decreased by 15% to ARS 1.7 billion in fourth quarter '19 compared to the ARS 2 billion in fourth quarter 2018. The decrease was mainly a result of the lower salaries and printing costs caused by the greater effect of the restatement for the fourth quarter '18, that was partially offset by higher severance payment expenses. Selling and administrative expenses decreased by 19% to ARS 1.3 billion in the fourth quarter '19. It was primarily the result of lower marketing expenses and salaries that was partially offset by higher fee for services and increase in bad debt and due to the inflation adjustment effect in fourth quarter '18. Please turn to Slide 14 where we show the key ratios for this segment. Comparing quarters, total circulation increased to 234,000 average daily copies. This figure includes approximately 68,000 digital subscribers, while printing circulation market share increased to 53%. Printing advertising share reached 51%. Regarding the Digital Content and Others segment on Slide 15. During the quarter, net sales decreased by 41% to ARS 518 million, mainly due to lower retail revenues and Grupo Clarín and Gestión Compartida fees measured in constant currency. EBITDA resulted negative in ARS 211 million. To conclude, I will review the current capital structure on Slide 17. As of today, the shareholder composition is 80% owned by the Argentine shareholders, the controlling shareholders and a public float of approximately 20%. Regarding the composition of our float, as shown in the slide, approximately 42% is international, while 58% is local. That concludes our comments, and we will be pleased to take your questions. Operator, we are ready for Q&A.

[Operator Instructions] It appears that we have no questions at this time. I would like to turn the program back to Mr. Agustín for any closing remarks.

I want to thank you all for your attendance today. We appreciate your interest in our company. Please do not hesitate to contact us if you have any further questions. We look forward to speaking with you again next May to talk about the first quarter result of 2020. Have a nice day, and have a nice weekend. Bye-bye.

This does conclude today's conference. You may disconnect your lines, and have a wonderful day.