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

Good morning. My name is Nikki, and I will be your conference operator today. [Operator Instructions] At this time, I would like to welcome everyone to the Grupo Clarín First Quarter 2020 Earnings Conference Call. 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, Ivana Severo, 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 need 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 has 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 are 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. We ask that you refer to the disclaimer in the earnings report or presentation for additional information regarding forward-looking statements. It is now my pleasure to turn the call over to Mr. Agustín Medina Manson for this presentation. Please go ahead, sir.

Thank you, Nikki, and good morning, ladies and gentlemen. Thank you for joining us today. This is certainly an eventful and historical quarter for all of us. I would like to start the call by expressing my hope that you and your families are all healthy and safe in these uncertain times. Also, I want to thank coronavirus heroes, like health workers, police officers and media workers and all the workers who are at the forefront of the fight against coronavirus. Let me quickly outline the agenda for today's call. We will start with a brief introduction regarding the measures taken by Grupo Clarín in order to face the COVID-19 situation and a 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, please move to Page 4. Grupo Clarín, as the largest diversified media group, is providing essential services to the community during this difficult time. We are focused on protecting our employees and continuing informing and entertaining our audience at the same time. Following the advice of an infectious disease specialist, we are speaking to all the required labor and security protocols. Most of our journalists have been doing home working since the beginning of the compulsory quarantine by mid of March. In addition, we have reorganized our facilities to run social distancing for those few editors that have to sit in the newsroom, but everyone who can work from home is requested to do so. Our newspapers decided that all the breaking news related to pandemic are accessible to readers on their digital platforms for free, whether they are paying subscribers or not. In addition, they have also incorporated special sections with key information on how to avoid the infection, detect its symptoms and what protocols to follow. For client subscribers, there is a specific coronavirus newsletter every day with detailed information and the latest update on the subject. Our 24-hour pay TV news channel, Todo Noticias, formed a health advisory council to provide clear, precise, valuable and responsible information for the community. In this sense, the interviews with prestigious health professionals is vital too for the public to access validated news with scientific support. In response to the advance of the coronavirus, the council is focused on explaining and teaching about infectious diseases, but in the future, it will expand the ground to other medical fields and useful health content. With the aim of providing a free entertainment service to Argentine during the mandatory lockdown, our free-to-air TV company, El Trece, uploaded into its digital platform all the episodes of our most successful fiction series and made them available for the public free of any charge. Additionally, we continue producing new content for our social network platforms. Entertainment shows are highly demanded by the audience, since they can contribute to psychological relief in times of compulsory confinement. We are proud of our role during this crisis, and we want to thank Grupo Clarín employees for their commitment to continue informing and entertaining our community, facing the risk of being in the front line during this extraordinary time. Now I will continue with the macro overview. Let's move to Page 5. As we have seen in our previous call, the Argentina economy keeps being immersed in a complex macroeconomic environment marked by a strong fiscal and monetary imbalance, tightened controls on the foreign exchange market and high levels of uncertainty, especially derived from the result of the sovereign debt renegotiation process. Although, immediately after taking over, the Fernández administration took a series of measures in order to stabilize the economy, COVID-19 impacted on the social and economic front, turning the world as well as the Argentine context more worrying and challenging. As a result of this complex scenario, the main Argentine macroeconomic variables have become more deteriorated. Regarding the economy activity, it has been in recession since the second quarter of 2008, falling 4.8% during the first quarter of 2020 as compared to the previous quarter, while the expectation for second quarter foresee a deeper fall, even deeper than those registered during the 1998 and the 2008 crisis. Quarterly information decreased to 50% on an annual basis, while the monthly variation was 3.3% at the end of March 2020. It is important to mention that the increase in prices and the pass-through effect derived from the currency depreciation have shown lower variations, mainly due to the mandatory lockdown. On the reference rate side, it decreased from 55% in December 2019 to 38% in March 2020, in line with the policy implemented by the Central Bank to promote both the credit and the economic activity recovery. On the fiscal front, it is expected to see a deficit increase, especially as a result of 3 factors: the tax collection fall derived from the economic plunge, the social measures launched by the government that imply high levels of expenses as well as lower levels of resources, and the funds demanded by provinces to allocate on salaries, among other items. Besides, since Argentina has constraints to access to the credit market, this deficit has been funded with monetary easing. In this sense, it is difficult to predict what the impact of this increase in the money supply on the economy will be in the medium term. Lastly, it is important to mention that the Argentine government continue renegotiation its debt and a positive resolution could set the ground to start a macroeconomic stabilization. In this difficult scenario with no precedent, the expectations about the Argentine economy will mainly depend on the debt renegotiation results as well as the extension or reinforcement of measures to prevent the society from the global pandemic spreading. Having gone through the macro overview, let me continue with the company performance. Please turn to Slide 7, so that we may briefly review some of the Grupo Clarín financial highlights for the first quarter 2020 period. But first, to understand some consolidation about the financial statement accounting, it is important to highlight that Argentina is a hyperinflationary economy and inflation adjustment has been applied by our management. Revenues for the first quarter 2020 grew by 26% to ARS 5 billion in historical pesos, lower than 48.3% inflation adjustment. So with the application of IFRS, revenue decreased by 16% from ARS 6.1 billion to ARS 5.1 billion in real pesos, mainly due to the decline of the Argentine GDP during the first quarter of the year, affecting overall advertising investment. EBITDA in nominal terms was negative in ARS 130 million, mainly driven by lower advertising revenues and higher programming costs. The net income for the period attributable to equity shareholders in real pesos was negative and amounted to ARS 529 million. On Page 8, we show revenues decreased more than cost, so it generated a negative EBITDA. In spite of the actions taken by the company to gain operational efficiency and manage its cost structure, the economy downturn for the eighth consecutive quarter had a strong impact on the income of all businesses segments. Additionally, we had a onetime cost related to our programming because due to the pandemic and the mandatory lockdown, we were not able to continue producing a fiction and all the episodes recorded that weren't broadcasted were accounted as cost in this quarter. We will discuss the breakdown by segment shortly, but first, I would like to review the debt financial position. As per Slide 9, total debt as of March 2020 increased 50% to ARS 2,137 million due to higher bank overdraft and financial loans with a net cash position of ARS 148 million. The company has an average debt cost of approximately 4.4% in U.S. dollars and 42% in pesos and an average maturity of around 1.5 years. Approximately, 75% of our total debt is in U.S. dollar, and 44% of the cash and equivalents are in U.S. dollar. Overall, we continue to show a very healthy debt profile with low 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 has impacted our company across all business segments, and this segment performed well in terms of revenues, considering the current macroeconomic conditions. Revenues decreased by 6% to ARS 2.3 billion in constant pesos in the first quarter 2020 compared to the ARS 2.4 billion in the first quarter of last year. This was due to lower advertising revenues in constant pesos in our Channel 13 and in our business radio -- and in our radio businesses. Cost of sales increased by 17% to ARS 1.8 billion. The increase was mainly caused by higher programming costs. We were producing a soap opera since the beginning of the year in comparison with last year. And due to the pandemic and mandatory lockdown, we couldn't continue producing fictions. And all the episodes that were recorded but not broadcasted generated a onetime cost. This cost of sales were partially offset by the effect of salary and programming cost restatement for the first quarter '19 versus the first quarter 2020. Selling and administrative expenses decreased by 5% to ARS 518 million in the first quarter 2020 compared with ARS 545 million last year. The decline was primarily the result of the effect of the restatement of salaries, marketing expenses and fee for services of the first quarter '19 versus the first quarter 2020 in order to be expressed in Argentina currency as of March 2020. During this period, adjusted EBITDA was negative in ARS 39.8 million. On Slide 12, in terms of audience share, on Channel 13, the prime time and total time audience decreased by 7% and 6%, respectively. This was the result of a better performance of our main competitor, Telefe Viacom. In spite of this, our audience performance has allowed us to increase to 36% our advertising market share and to continue as a market leader. Now let's move on the printing and publishing on the next slide. Total revenues decreased by 18% to ARS 2.6 billion in the first quarter 2020 mainly as a result of lower circulation and advertising revenues in constant pesos. In spite of a solid customer subscription base, circulation revenues decreased in real terms because price adjustment was lower than inflation. Also during the first quarter 2020, advertising revenues in current pesos stood flat and inflation was 48.3%. The total adjusted EBITDA for the first quarter of 2020 was negative for ARS 88.6 million. We continue stabilizing our operation and deploying strategic actions with the expectation of improving the company's long-term sustainability, but the impact of the economy downturn in our mix of revenue has been strong. Cost of sales decreased by 13% to ARS 1.529 billion in the first quarter 2020 as compared to the ARS 1.762 billion last year. The decrease was mainly the result of lower salaries and printing costs caused by the effect of inflation adjustment in the first quarter '19. Selling and administrative expenses decreased by 13% to ARS 1.1 billion in the first quarter 2020. This was primarily the result of lower salaries, marketing expenses and fee for services due to the inflation adjustment. Please turn to Slide 14, where we've shown the key ratio for this segment. Comparing quarters, total circulation increased to 243,000 average daily copies. These figures include approximately 93,000 digital subscribers, while printing circulation market share increased to 42% -- decreased, sorry, to 42%. Printing advertising share reached 51% -- sorry, market share increase. Regarding the other segment on Slide 15, during the first quarter 2020, net sales decreased by 44% to ARS 553.5 million, mainly due to lower revenues at Grupo Clarín and Gestión Compartida, measuring content currency. EBITDA resulted negative in ARS 2 million. To conclude, I will review the current capital structure on Slide 17. As of today, the shareholder proposition is 80% owned by the Argentine shareholders, like controlling shareholders and a public float of approximately 20%. Regarding the composition of our flow currently, as shown in the slide, approximately 42% is international, while 58% is local. That concludes our comments. 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 now like to turn the program back to Mr. Agustín Medina Manson for any closing remarks.

Thank you, Nikki. 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 regarding the results for the second quarter 2020. Thank you. Have a nice day.

This concludes today's conference. You may disconnect your line at any time, and have a wonderful day.