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

Good afternoon. My name is Betsy, and I will be your conference operator for today. [Operator Instructions] This is Grupo Clarín conference call, where we will discuss results for the first quarter of 2021. This call is for investors and analysts only. Therefore, questions from the media will not be taken at this time. However, if you are a member of the media and have questions, please contact Fig Corporate Communications following the call. I will now introduce our speakers. Ms. Samantha Olivieri, Head of Investor Relations; and Ms. Valentina López, senior analyst. Additionally, Iván Acevedo, Controller; 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, May 13. If you have not received the report or need assistance during today's call, please contact Fig Corporate Communications in New York at (917) 691-4047 or the company in Buenos Aires at 54-114-309-7104. Grupo Clarín has posted the webcast presentation and can be found at www.grupoclarin.com under the IR section. Comments made by management may contain forward-looking statements about future performance, plans, strategies and targets of Grupo Clarín. Such statements are subject to uncertainties that could cause Grupo Clarin's actual results and operations to differ materially. Such uncertainties include but are not limited to, the effects of the impacts and duration of COVID-19 pandemic, 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 the general market, economy or regulatory conditions. Please refer to the disclaimer in the earnings report or presentation for additional information regarding forward-looking statements. It's now my pleasure to turn the call over to Ms. Samantha Olivieri. Please go ahead.

Thank you, Betsy. Good afternoon, everyone. 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's results and financial position. Later, we will review the current ownership structure of the company. Having gone through the agenda, let me pass the call to Valentina for the macro overview.

Thank you, Samantha. Let's move on to Slide 4. As we've seen in our previous calls, the Argentine economy is going through a deep recession, worsened by the COVID-19 pandemic, which has caused, among other effects to macroeconomic imbalances, the highest fiscal deficit in the last decade and a monetary [ overhang ] that the economy we have to process as a result of the monetary issue in 2020 to cover the fiscal deficit. Regarding the economic activity, GDP is expected to close the first quarter of 2021 with an increase of 2% as compared to the previous quarter and of 1.5% on an annual basis registering a recovery after the planch of 2020 despite its [ weight ] condition. However, on a quarterly basis, we expect some contraction for the coming period, mainly due to the reinforcement of restrictions on the activity and overnight mobility launched by the government in April 2021. It is worth noting that the improvement in the activity evolution has come with an increase in inflation. Especially as a result of the economic recovery, the current monetary [ overhang ] and macroeconomic policies that remain low. Quarterly inflation was 40.6% on an annual basis, while the monthly variation was 4.8% at the end of March 2021, recording a higher-than-expected price acceleration. Meanwhile, the government is tightening price controls, raising utility prices marginally and reinforcing its intervention on the foreign exchange market as a main way to anchor inflation. The reference rate stood at 38% at the end of March of 2021. Consensus is that the Central Bank will not increase interest rates before the elections despite an accelerating inflation, seeking to boost economic recovery and contain the fiscal deficit, which shows signs of worsening. The Argentine economy continues to show several difficulties and more uncertainty is expected since legislative elections are taking place this year and no progress has been made on the new program with IMF. The main challenge is that the current administration could face in order to stabilize the economy and achieve a sustainable growth path are the improvement of the health situation derived from the COVID-19 pandemic, the reduction of the fiscal and monetary imbalances, the ability to [ each ] foreign exchange restrictions and contain inflation as the activity recovers and a new agreement with the IMF. Now I will pass the call to Samantha.

Thank you, Valentina. Having gone through the macro overview, please turn to Slide 6 to briefly review some of the financial highlights for Grupo Clarin's first quarter of 2021. The company has reflected the effects of the inflation adjustment adopted by Resolution 777-18 of the Comisión Nacional de Valores, CNV, which establishes that the reexpression of figures must be applied to the annual financial statements for intermediate and special peers ended as of and including December 31, 2018. Accordingly, the reported figures corresponding to the first quarter of 2021 include the effects of the adoption of inflationary accounting in accordance with IAS 29. For comparative purposes, the results restated by inflation corresponding to March 2020 contains the effect of year-over-year inflation as of March 2021, which amounted to 42.6%. In this presentation, we included some figures and historical values for the sake of clarity. Revenues for the first quarter of 2021 grew by 33% to ARS 6.6 billion in nominal terms, lower than the 42.6% inflation, thus considering IAS adjustment, revenues decreased by 6% from ARS 7.3 billion to ARS 6.9 billion in real pesos, mainly due to lower programming revenues in Broadcasting and Programming segment, partially offset by higher advertising revenues and the unconsolidation of the postal business and lower circulation revenues in the Printing and Publishing segment. EBITDA in nominal terms reached ARS 1.3 billion from negative ARS 0.1 billion. Mainly driven by higher advertising revenues and cost reduction initiatives across all segments to accompany the reduction in revenues derived from the impact of COVID-19 pandemic. Revenues for Broadcasting and Programming and for Printing and Publishing represented 46% and 45% of total revenues, respectively, while revenues for the other segment represented 9%. Net income for the period attributable to equity shareholders in real pesos amounted to ARS 681 million, a marked improvement from the 2020 figure of negative ARS 755 million. The increase was mainly the result of a higher EBITDA and positive other income versus the loss in first quarter 2020 due to impairment of goodwill. Partially offset by higher negative net financial results due to higher negative inflation adjustment and negative result of operations with notes and bonds compared to a gain in the first quarter of 2020. Moving on to Slide 7. As the graph show, cost decreased more than the revenues generating and EBITDA margin expansion in the first quarter of '21 compared to first quarter 2020. It should be noted that the operating results for the first quarter of 2020 were marked by a steep recession that had started in the fourth quarter of 2019 and continued through the first quarter of 2020. And the partial impact of the mandatory lockdown imposed by the government from mid-March 2020 in an effort to contain the COVID-19 pandemic. In turn, as Valentina mentioned before, GDP shows signs of recovery during the first quarter of 2021, mainly related to the easing of the lockdown imposed by the government, but we expect some contraction for the coming period, mainly due to the reinforcement of restrictions on the activity and overnight mobility launched by the government in April 2021 in an effort to contain the rise in COVID-19 cases. We will discuss the breakdown by segment shortly, but first, let's review the debt financial position as per Slide 8. The total debt as of March 2021 decreased 43.5% to ARS 1.7 billion due to lower bank overdrafts and short-term financial loans. Approximately 87.9% of our total debt, that is $16.5 million and 45.7% of the cash and equivalents or $16.8 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 10. As we mentioned before, the moderate signs of recovery shown by the Argentine economy during the fourth quarter of 2020 and the first quarter of 2021 positively impacted this segment, reverting the trend of interannual revenue fall we had been seeing during the previous quarters. Revenues increased by 6.7% to ARS 3.5 billion in constant pesos in first quarter '21 compared to ARS 3.3 billion in first quarter 2020. This was due to higher motoring event revenues, mainly from racing competition -- car racing competitions rescheduled to first quarter '21. Usually, there are no car races in January and February. And higher advertising revenues in constant pesos in Channel 13, partially offset by lower programming revenues. Our subsidiary, ARTEAR sells its content to cable TV operators, and revenues are affected by their capacity to increase prices for pay TV services to their subscribers. Cost of sales decreased by 29.6% to ARS 1.8 billion. The decrease was mainly caused by lower programming costs and salaries. The pandemic and the mandatory lockdown drastically changed the programs on air. Fiction content production remains halted and costly programs usually aired in previous years, such as the local version of Dancing with the Stars, were not produced during 2020. However, we expect this to change during the coming quarter as regular programming restarts, and we begin airing more appealing shows with historical TV stars of Channel 13 screen, such as Marcelo Tinelli, return to the screen on Monday after more than a year away and the airing of new locally produced fictions. Selling and administrative expenses were stable in constant pesos at ARS 669 million. During this period, adjusted EBITDA was ARS 895 million, and the margin stood at 25.7%. Prime time for Channel 13 audience share decreased 2% and total time audience share increased by 3%. This was the result of a better performance of our main competitor, Telefe Viacom, largely due to changes in our programming described before. Despite this, our audience performance has allowed us to reach 35.7% of advertising market share with a power ratio above 1, outperforming the industry. Now let's move on to the Printing and Publishing segment on the next slide. Total revenues decreased by 7.6% in real terms to ARS 3.4 billion in first quarter '21. Mainly as a result of the unconsolidation of the postal business and lower circulation revenues in real terms. Both printed and digital circulation showed a decrease from levels for the same period of 2020. Additionally, during first quarter '21, advertising revenues in nominal pesos increased by 25.8% while interannual inflation as of March was 42.6%. Cost of sales decreased by 18.6% to ARS 1.8 billion in first quarter '21 compared to ARS 2.2 billion in first quarter 2020. The decrease was mainly the result of the unconsolidation of the postal business and to lower salaries and printing costs caused by greater effective restatement for first quarter 2020 and lower consumption of raw materials as a result of lower printed circulation. Selling and administrative expenses decreased by 20.7% to ARS 1.3 billion in first quarter '21. This was primarily the result of lower marketing and advertising costs, salaries and distribution costs. Comparing quarters, total circulation decreased to 229,000 average daily copies. This figure includes an average of approximately 88,500 digital subscribers compared to an average of 93,400 in first quarter '20. Printing circulation market share decreased from 42% to 38.7% in first quarter '21. Regarding our Other segment, turn to Slide 12. During first quarter '21, net sales decreased by 11% to ARS 703 million, mainly due to lower revenues at Grupo Clarin Gestión Compartida measured in constant currency. EBITDA resulted in positive ARS 72 million. Gestión Compartida is a shared services companies and derives its revenues from administrative and corporate services rendered to Grupo Clarín and its subsidiaries, which are eliminated in consolidation. During the last year, it has been increasing the participation of third-party revenues and its total revenues, generating new sources of income. Having gone through the segment breakdown, please refer to Slide 14 for a review of our ownership structure. As of today, 80% is owned by the controlling shareholders, and total float is approximately 20%. Regarding the current composition of our float, as shown on the slide, approximately 43% is international and 57% is local. That concludes our comments for today. We will now take your questions. Operator?

[Operator Instructions] And it appears that we have no questions at this time. I would like to turn the program back over to Samantha Olivieri for any closing remarks.

Thank you, Betsy. 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, I look forward to speaking with you again about second quarter '21. Thank you. Have a great day.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.