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

Good morning. My name is Leo, 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 2020 Results Earnings Conference Call. [Operator Instructions] I will now introduce our presenters. 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 Thursday, March 11. If you did not have -- if you have not received the report or need assistance during today's call, please contact i-advize in New York at area code (212) 406-3695 or the company in Buenos at 54-1-143-097-215. 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. 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 this 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 very much, Leo, and good afternoon, ladies and gentlemen. Thank you for joining us 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 and a break -- sorry, prior to that, breakdown by segment. And later, we will review the current ownership structure of the company. Having gone through the agenda, please move to Page 4. As we have seen in our previous call, [indiscernible] unexpected scenario to play out in 2020 in the entire world due to the COVID-19 pandemic, which resulted in a global crisis with no precedence. This complex environment hit every sector of the Argentine economy, which is going through its third year of recession and has been especially marked by an increasing fiscal deficit, monetary imbalances and high pressure on the FX market. During 2020, the current administration was focused on the sovereign debt renegotiation to avoid going into default as well as establishing the main macroeconomic variables. On the other hand, the public policies were based on trying to minimize the negative effect of the pandemic and prevent the virus from spreading. Accordingly, the suspension of activities and a mandatory lockdown were imposed. In addition, a series of social measures were launched to contain the economic collapse as well as the difficulties derived from an increase in unemployment and macroeconomic imbalances. Regarding the economic activity after the plunge in the second Q 2020, GDP showed signals of recovery during the second half of the year, and it is expected to have closed the 4Q 2020 with an increase of 4.5% as compared to the previous quarter, mainly fostered by the flexibilization of the lockdown measures and the partial normalization of activities. On an annual basis, it is expected to have fallen around 11%. Quarterly inflation was 36.4% on an annual basis, while the monthly variation was 4% at the end of December 2020, registering a higher-than-expected prices acceleration after a period contained by the quarantine, the utilities prices freezed and the controlled depreciation of the official FX rate. It is worth mentioning that considering the monetary issuance that the Central Bank has carried out since last year and a bounce back in the economy activity, inflation is expected to increase for the year 2021. The reference rate stood at 38% at the end of December 2020, in line with the policy implemented by the Central Bank to promote both, credit and the economic activity recovery. It is important to highlight that it decreased to 36% at the end of October. But since the only current way to finance public deficit is monetary issuance, the Central bank closed the second half of the year, increasing the reference rate to a level 38% and it is expected to increase for 2021 in order to deal with the current monetary overhang in the economy. The Argentine economy continues to show many difficult and since legislative elections are taking place during this year, more uncertainty is expected. In order to stabilize the economy and achieve a sustainable growth, the key points will be the reduction on the fiscal and monetary imbalances and new agreement with the IMF and the ability to ease FX restriction and contain inflation as the activity recovers. Having gone through the macro overview, please turn to Slide 6. So we'll briefly review some of the Grupo Clarín's financial highlights for the fiscal year 2020. But first, let me remind you that since Argentina has become a hyperinflationary economy, inflation adjustment has been applied to our financial statement. Revenue for the fiscal year of 2020 grew by 9% to ARS 22.8 billion in nominal pesos, lower than the 36.1% inflation. Thus, considering inflation adjustment, revenue decreased by 23% from ARS 34.6 billion to ARS 26.6 billion in real pesos, mainly due to the decline of the Argentine GDP during the year, affecting overall advertising investment. EBITDA in nominal terms, increased by 122% to ARS 2.8 billion, mainly driven by higher advertising revenues for the fourth quarter 2020 when compared to fourth quarter 2019, and cost reduction initiatives across all segments to accompany the reduction in revenues derived from the impact of the COVID-19 pandemic. Adjusted by inflation, EBITDA increased 44%. Net income for the period attributable to equity shareholders in real pesos was negative and amounted to ARS 274 million, a marked improvement from 2019 figure of negative ARS 2 billion. Moving on to Page 7, as the graphs show, cost decreased more than revenues, generating an EBITDA margin expansion in 2020 compared to 2019. Despite the actions taken by the company to gain operational efficiencies and manage its cost structure, the strong economy downturn caused by the pandemic and the mandatory lockdown had a negative impact on the income of all business segments. On the other hand, thanks to the emergency assistance for work and production program launched by the government, the company has been able to reduce its salaries cost during this fiscal year. As I mentioned before, GDP showed some signs of recovery during the third and fourth quarter of 2020, mainly related to the easing of the lockdown imposed by the government, and this, as shown in the next slide, had a positive impact on the company's performance. Revenues for the fourth quarter grew by 25% to ARS 7.4 billion in nominal terms from year-to-year, driven mainly by higher advertising revenues in the Broadcasting and Programming segment. This represents a decrease of 5% in real terms from ARS 8.3 billion to ARS 7.9 billion. Adjusted by inflation, EBITDA amounted to ARS 1.7 billion versus negative ARS 23.5 million of last year. And net income for the period attributable to equity shareholder in real pesos amounted to ARS 515 million from negative ARS 1.1 billion in the fourth quarter 2019. Turning to the next slide. Costs for the fourth quarter 2020 decreased in real term when compared to the same period of 2019, even without the assistance program of the government in most of our subsidiaries during the last quarter. This was mainly attributable to lower programming costs in Channel 13, lower distribution and printing costs in our Printing and Publishing segment, and lower salaries and severance payments, marketing and advertising costs. Now let me pass the call to Samantha to review the debt financial position.

Thank you, Agustín. Total debt as of December 2020 decreased 33% to ARS 1.7 million due to lower bank overdrafts and short-term financial loans. The company has an average debt cost of approximately 1.2% in dollars and 35.2% in pesos and an average maturity of around 1.5 years. Approximately 84.2% of our total debt, USD 17 million, and 53% of cash and equivalents, USD 17.5 million, are in U.S. dollars. 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 12. As Agustín mentioned before, the moderate signs of recovery is shown by the Argentine economy during the fourth quarter positively impacted the segment, reverting the trend of inter-annual revenue fall we've seen during the previous quarters. Revenues increased by 8.7% to ARS 4.3 billion in constant pesos in fourth quarter 2020 compared to ARS 4 billion in fourth quarter '19. The this was due to higher advertising revenues in constant pesos at Channel 13. Cost of sales decreased by 26% to ARS 2 billion. The decrease was mainly caused by lower programming costs, salaries and taxes due to some contributions. The pandemic and the mandatory lockdown drastically changed the programs on air. The production of fictions was halted and costly programs usually aired on previous years, such as the local version of Dancing with the Stars weren't produced. Selling and administrative expenses were stable at ARS 855 million. During this period, adjusted EBITDA was ARS 1.5 billion, and the margin stood at 34.4%. Moving on to the Slide 13 for a brief overview of key performance indicators. Prime time and total time audience shares for Channel 13 decreased by 25% and 6%, respectively. This was a result of a better performance of our main competitor, Telefe Viacom, largely due to the changes in our programming described before. Despite this, our audience performance has allowed us to reach a 35.9% of advertising market share with a power ratio above 1, outperforming the industry. Now let's move on to the Printing and Publishing program on the next -- Publishing segment on the next slide. Total revenues decreased by 16.3% in real peso to ARS 3.3 billion in fourth quarter '20, mainly as a result of lower circulation and advertising revenues in real terms. Digital circulation performed above the level for the same period of 2019, but that wasn't enough to offset the lower traditional circulation revenues. Additionally, during fourth quarter '20, advertising revenues in current pesos increased by 8% and inflation was 36.1%. Cost of sales decreased by 31.4% to ARS 1.6 billion in fourth quarter 2020 compared to ARS 2.4 billion in fourth quarter '19. The decrease was mainly the result of lower salaries and printing costs caused by the greater effect of restatement of fourth quarter '19. Selling and administrative expenses decreased by 24.4% to ARS 1.3 billion in fourth quarter '20. This was primarily the result of lower bad debt charges, fee for services and distribution costs. In addition, both cost of sales and selling and administrative expenses were impacted by high levels of severance payments in the fourth quarter '19, reflecting structural changes in headcount. Please turn to Slide 15, where we show the key ratios for this segment. Comparing quarters, total circulation increased to 250,000 average daily copies. This figure includes an average of approximately 136,000 digital subscribers compared to an average of 85,000 in fourth quarter '19. Printing circulation market share decreased from 41.9% to 41.1% in fourth quarter 2020. Turning to the next slide. As discussed at last conference call, our subsidiary AGEA, owner of Clarín newspaper and the company Prisma have partnered under joint venture and developed Bimo, an e-wallet that combines the best of both companies. The capillarity of Clarín, particularly through its 365 affinity cards and programs and its benefits and Prisma's extensive financial services and its connection with the banking system. Hence, both companies offer 2 key features for any e-wallet, a strong user base at the 2 ends of the process. Clarín with its estimated 1 million 365 affinity cards, I mean, that is through its 365 affinity cards and Prisma with 400,000 stores that use its payment transaction terminals. In addition, the e-wallet is intended for it -- in its first phase, bank users. Users may add all credit, debit and prepaid cards issued by any bank or fintech company in Argentina. Bimo is preparing a commercial launch for the second quarter of 2021. Regarding the other segment, turn to Slide 17. During the fourth quarter '20, net sales decreased by 20% to ARS 562 million, mainly due to lower revenues at Grupo Clarín and Gestión Compartida measured in constant currency. EBITDA resulted in negative ARS 107 million. Now let me pass the call to Agustín for review of our current capital structure and final remarks.

Thank you, Samantha. Please refer to Slide 19. As of today, the shareholder composition is 80% owned by the controlling shareholders and a public float of approximately 20%. Regarding the composition of our float, currently, as shown on the slide, approximately 42% is international and 58% local. That concludes our comments. But before we take your questions, I would like to thank, first, our stakeholders. This is my last conference call. I will continue my professional career in a new venture, and Samantha, an outstanding professional, will be leading the IR department and continue offering the best for Grupo Clarín stakeholders.

Thank you, Agustín. On behalf of the Board of Directors and Grupo Clarín's management, I would like to express our gratitude for the professionalism with which you've worked over the past years, and wish you the best of luck in your future endeavors. On a personal note, I'd like to thank the Board for entrusting me with this new role. We will be pleased to answer your questions now.

Operator, we are ready for Q&A.

[Operator Instructions]

Leo, we are getting questions from the webcast. And now we are going to read it and share it with the rest of the shareholders and investors, and we are going to answer it.

The first question is regarding the fourth quarter EBITDA, which almost doubled from third quarter 2020. Do you see this level as sustainable? Or it was onetime guidance -- it was onetime that contributed?

Well, thank you for your question. First of all, remember that 2020 was a year with pandemic with mandatory lockdown and a lot of companies reduced the marketing budget during the first half of the year. So most of retailers, supermarkets and other company that used to advertise in our media, postponed, and in all the media markets, they postponed advertising in our products, right? And also, remember that you have some seasonality related with advertising. In general, 4Q is stronger than third Q across the history of the company. Remember that in the fourth Q, you have Mother's Day in Argentina. And also, you have Christmas season and New Year season. So that is what happened with the 4Q. The impact of the pandemic, companies postponing advertising in different media and also, you have the seasonality explanation.

The next question is, can we offer guidance for 2021 EBITDA? And the second, about the cash position, I see in cash, and other current investments, ARS 3,238 million, but in the press release, stated ARS 2,787 million, is that different from the maturities of certain holdings? Can you provide more information on the cash position?

Going to the first part of your question, I'm going to take that, then Samantha is going to answer the rest of the question. One second, please. We are not giving guidance related with EBITDA right now for different reasons. But one of the main reason is, this is the third year in a row with a decrease in GDP. And nobody knows how it's going to be this year. If we are going to be hit by a second wave of COVID-19 and spreading the virus in the second quarter of the year. So it is very difficult for us to offer you guidance. And we prefer, as a company, be more cautious and not offering guidance right now. And now Samantha is going to answer the second part of your question related with the cash position and the debt. Could you explain a little bit further your question related with the cash because we are not finding the difference that you have mentioned, in the webcast. But in the financial statement, the cash and equivalent should be similar to the cash equivalent that we have in our press release. And if you have some doubt about it, do not hesitate, call us, and we can explain you if there is a difference of -- if there is any typo in our press release. Okay. We are -- what -- we are reading the balance sheet and our press, and we are seeing the same figure related with the cash. So as I told you before, if you have any doubt, contact us, and we'll be glad to help you to explain the difference that you are seeing or you are thinking that there is over there.

And are there any further questions via the webcast? There are no further questions via webcast or phones. I'd be happy to return the call to our host for any concluding remarks.

Thank you, Leo. Thank you, everyone, for joining us today, and thank you for your question. We appreciate your interest in our company. As I told you before, thank you to our all stakeholders. Thank you to my colleagues and my friends that support me during the last 10 years working here in Grupo Clarín. And I wish the best of luck to Samantha and the new team in this new role as IR of the most important media company in the country. Have a nice weekend.

This does conclude the Grupo Clarín Fourth Quarter and Full Year 2020 Results Earnings conference call. You may now disconnect. Everyone, have a good day.