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

Good morning and welcome to the Grupo Clarín's conference call, where we will be discussing the first half and second quarter of 2021 results. My name is Betsy, and I will be your conference operator today. [Operator Instructions] 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 this call. I will now introduce our speakers: Mrs. Samantha Olivieri, Head of Investor Relations; and Ms. Valentina López, senior analyst. 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 Wednesday, August 11. If you have not received the report or need any 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 also posted the webcast presentation that can be found at the website at www.grupoclarin.com under the IR section. 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 the impact and duration of the 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 general market, economic or in regulatory conditions. Please 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 Mrs. 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 have mentioned in previous calls, the Argentine economy is going through a slight recovery after a significant GDP fall of around 10% in 2020, worsened by the COVID-19 pandemic. Even though the second wave has been overcome and the vaccination plan is progressing, the risk derived from new variants is turning the context more worrisome and challenging. In this complex scenario, with the legislative midterm elections taking place in the coming months, the government intends to reach these elections with an economic recovery, FX market stability and strengthened real incomes. Regarding the economic activity, after the plunge of 2020, it has started a recovery path but a slower pace than the countries of the region. GDP is expected to close the second quarter of 2021 with an increase of 15% on an annual basis and a fall of 1.5% as compared to the previous quarter, showing a slowdown during the period mainly due to lockdown measures enforced in April and May. However, growth expectations are around 7% by the end of the year driven by an improvement during the second half of 2021 as economic activities returned to normal. It is worth noting that the economic activity evolution has come with increasing inflation. We can see in the Consumer Price Index graph, even though the government is tightening price controls and reinforcing its intervention on the FX market as the main way to anchor inflation, prices keep accelerating at a higher-than-expected rate, increasing more than salaries, regulated tariffs and official FX rate. On an annual basis, inflation was 50.2% at the end of June 2021, the highest rate registered in 2021, even above the inflation registered in 2020. Regarding the current account balance, as we can see in the graph, Argentina has registered another period of current account surplus and high primary fiscal deficit. On the fiscal front, even though primary fiscal account had a positive performance during the first half of 2021, a seasonal jump of the fiscal spending is expected during the second half of 2021, which will be intensified by the coming elections and in the year with a primary fiscal deficit of 3.5% in terms of GDP. Lastly, it is important to mention that despite the recovery during the first half of 2021, the Central Bank gross reserves remain weak, especially considering the certain foreign exchange debt profile. As we can see in the last graph of the slide, even considering that Argentina will be benefited from the IMF's special drawing rights to boost its reserves, a consistent and comprehensive macroeconomic program with the IMF is crucial in the short term to ease the burden of the maturities, maintain a solid level of reserves and achieve a sustainable growth path. Summing up, we expect the Argentine economy continues to show high levels of uncertainty, especially considering that there is not a clear macroeconomic path and legislative elections are taking place during this year. We still believe that a new agreement with the IMF is critical for well performance of the economy. In this sense, the main challenges that the current administration is facing are the reduction of the fiscal and monitoring balances, the ability to ease FX restrictions and contain inflation as the economic activity recovers, the improvement of the health situation and the progress in the vaccination plan. Now I will pass the call back to Samantha.

Thank you, Valentina. Having gone through the macro overview, please turn to Slide 6 to briefly review some of Grupo Clarín's financial highlights for the first half 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 re-expression of figures must be applied to the annual financial statements for intermediate and special periods ended as of and including December 31, 2018. Accordingly, the reported figures corresponding to first half and second quarter 2021 include the effects of the adoption of inflationary accounting in accordance with International Accounting Standards 29. For comparative purposes, the results restated by inflation corresponding to June 2020 contain the effects of year-over-year inflation as of June 2021, which amounted to 50.2%. In this presentation, we included some figures in historical values for the sake of clarity. Revenues for the first half of 2021 increased by 46.1% to ARS 14.2 billion in nominal pesos, lower than the 50.2% inflation. Thus, considering IAS adjustment, revenues increased by 1% from ARS 15.4 billion to ARS 15.5 billion in real pesos, mainly due to higher advertising revenues in the Broadcasting and Programming segment, partially offset by higher -- by lower programming revenues, compensated by the unconsolidation of the postal business and lower printing services revenues in the Printing and Publishing segment. EBITDA in nominal terms reached ARS 2.4 billion from ARS 0.5 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 the COVID-19 pandemic during last year. Revenues for Broadcasting and Programming and Printing and Publishing represented 51% and 43% of total revenues, respectively, while revenues for the Others segment represented 6%. Net income for the period attributable to equity shareholders in real pesos amounted to ARS 914.4 million, a marked improvement from the 2020 figure of negative ARS 345.6 million. The increase was mainly the result of a higher EBITDA and positive other income versus a loss in the first half of 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 2020. Moving on to Slide 7. Revenues for the second quarter of '21 increased by 60.1% to ARS 7.6 billion in nominal pesos, and EBITDA increased by 94% to ARS 1,159.1 million in nominal pesos. If we consider inflation adjustment, revenues increased by 8.3%, while EBITDA increased by 24.1%. Net income for the period attributable to equity shareholders in real pesos was ARS 158.9 million. The decrease was mainly attributable to lower equity earnings from unconsolidated subs and higher negative net financial results due to negative inflation adjustment versus the gain in second quarter 2020 and negative result of operations with notes and bonds compared to a gain in 2020. Please move to Slide 8. As the graphs show, both revenues and cost increased in real terms with an EBITDA margin expansion in second quarter '21 compared to second quarter '20. It should be noted that operating results for the second quarter 2020 were marked by a steep recession and the full force impact of the mandatory lockdown imposed by the government from mid-March 2020 in an effort to contain the COVID-19 pandemic, affecting advertising and circulation revenue. While several of our subsidiaries were benefited by the Emergency Assistance for Work and Production program, ATP for its acronym in Spanish, launched by the government to assist distressed companies affected by the lockdown, which represented cost savings in the second quarter '20 for approximately ARS 315 million restated as of June 2021. If we detract the effect of the ATP savings in second quarter '20, EBITDA increase for second quarter '21 in real terms reaches 87%. In turn, as Valentina mentioned before, GDP showed signs of a slower recovery during the second quarter of 2021 as compared to the first quarter of the year, 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 the COVID-19 cases. But we expect some expansion for the coming period mainly due to the easing of restrictions and seasonal jump of fiscal spending expected during the second half of the year, which will be intensified by the coming midterm elections. We will discuss the breakdown by segment shortly, but first, let's review the debt financial position is for Slide 9. The total debt as of June 2021 decreased 18.4% to ARS 1.9 billion due to lower over -- bank overdrafts and short-term financial loans. Approximately 83% of our total debt, $16.4 million; and 55% of the cash and equivalents, $20.1 million, are in U.S. dollars. Overall, we continue to show a very healthy debt profile and low leverage. Moving on to the segment breakdown. We begin with Broadcasting and Programming division on Slide 11. As we mentioned before, the moderate signs of recovery shown by the Argentine economy during the fourth quarter of 2020 and the first half of 2021 positively impacted the segment, reverting the trend of internal revenue fall we had been seeing during previous quarters. Revenues increased by 26.5% to ARS 4.3 billion in constant basis in second quarter '21 compared to ARS 3.4 billion in second quarter '20. This was due to higher advertising revenues in constant pesos in Channel 13 and Radio Mitre, partially offset by lower programming revenues and higher motoring events revenue since the public events were suspended during second quarter '20 during lockdown. 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 increased by 23.3% to ARS 2.3 billion. The increase was mainly caused by higher programming costs as regular programming restarted and more costly shows returned to the screen and costs related to motoring events. The pandemic and the mandatory lockdown drastically changed the programs than they are last year. Fiction content production was halted, and costly programs usually aired in previous years, such as the local version of Dancing with the Stars, were not produced during 2020. In addition, public events such as car races were suspended. Selling and administrative expenses increased 21.5% to ARS 870.4 million in constant pesos mainly due to higher salaries, severance payments and restructuring costs and the ATP impact in 2020. During this period, adjusted EBITDA increased 37.9% to ARS 1.2 billion, and the margin stood at 26.8%. Prime time for Channel 13 audience share decreased 6.3%, and total time audience share decreased by 1.2%. This was a result of a better performance of our main competitor, Telefe Viacom. Despite this, our audience performance has allowed us to reach 37.1% of advertising market share with a power ratio of above 1, outperforming the industry. Now let's move on to the Printing and Publishing segment on the next slide. Total revenues decreased by 8.5% in real terms to ARS 3.3 billion in second quarter '21, mainly as a result of the unconsolidation of the postal business and printing revenues in real terms, partially offset by higher advertising and circulation revenues. Revenues for the postal business for the second quarter '20 adjusted by inflation as of June 2021 amounted to ARS 312 million, while EBITDA was positive ARS 3.4 million. Revenues for the Printing and Publishing segment remained stable in constant pesos despite the tough macroeconomic environment and high inflation, if we detract the effect of the postal business in 2020. This segment has been transformed radically as traditional paper gives way to new digital format. Digital advertising is gaining share as a percentage of total advertising revenues, and paywall revenues are gaining share as a percentage of newspaper circulation revenues. Traditional circulation saw a slight decrease from levels for the same period of 2020 to 215,800 average daily copies with a decrease in share, while paywall subs reached 224,400 at the second quarter '21, 47% higher than second quarter '20. Additionally, during second quarter '21, advertising revenues in nominal pesos increased by 74%, while interannual inflation as of June was 50.2%. Cost of sales decreased by 8.2% to ARS 1.9 billion in second quarter '21 compared to ARS 2 billion in second quarter '20. The decrease was mainly the result of the unconsolidation of the postal business, partially offset by higher salaries and printing costs and raw materials. This segment has also been benefited by the ATP program during 2020. Selling and administrative expenses decreased by 8% to ARS 1.4 billion in second quarter '21. This was primarily the result of lower distribution costs. Regarding the Others segment, turn to Slide 12. Management has reassigned the revenues and expenses of its subsidiary, Oportunidades S.A., previously assigned to the Others segment, to Printing and Publishing in order to better reflect current operations. Accordingly, comparative figures for 2020 have been adjusted. During second quarter '21, net sales increased by 13.9% to ARS 535.1 million mainly due to higher revenues at Gestión Compartida, partially offset by lower management fees revenues at Grupo Clarín, which are eliminated in consolidation, measured in constant currency. EBITDA resulted negative in ARS 47.3 million. Gestión Compartida is a shared services company and derive its revenues from administrative and corporate services rendered both to Grupo Clarín and its subsidiaries and to third parties. During the last years, it has been increasing the participation of third-party revenues in 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 controlling shareholders, and total float is approximately 20%. Regarding the current composition of our float, as shown on the side, approximately 41% is international and 59% is local. That concludes our comments. We will now take our questions. Betsy?

[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 questions. I look forward to speaking with you about third quarter '21. Thank you. Have a great day.

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