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

Good morning, and welcome to Grupo Clarín's Conference Call, where we will discuss results for the 9 months and third quarter 2021. My name is Anthony, 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 the 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 a webcast presentation that can be found 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 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, Anthony. Good morning, 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 results and financial position. Later, we will review the current ownership structure of the company. Having gone through the agenda for the day, let me pass the call to Valentina for the macro overview.

Thank you, Samantha. Let's move on to Slide 4. Argentina's economy is going through a big crisis with no president worsened by the COVID-19 pandemic. And even though the second wave has been overcome and the economy has shown some level of recovery, the risk derived from new variants is turning the context more worrisome and challenging. Moreover, the mid-term elections took place in this complex scenario. And from a macro economic and financial perspective, its results are decided in the government strategy moving forward. In addition, the costs associated with the required macroeconomic assessment needed to address the prevailing imbalances will likely be greater given the negotiations with to IMF to avoid the chance of falling into arrears next year. Regarding the economic activity, after the plunge of 2020, it has started a recovery path, but at lower pace than the countries of the region. GDP is expected to close the third quarter of 2021 with an increase of 9% and 2.2% on an annual basis and compared to the previous quarter, respectively. As a result of such expectations, the economic growth forecast has been revised upwards to around 8% by the end of the year, mainly driven by the easing of restrictions during the second half of 2021 and economic activities returning to normal. However, at lower dynamic is expected for the coming quarters. It is worth noting that the economic activity evolution has come with increasing inflation. As 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. At the end of September 2021, inflation was 52.5% on an annual basis, the highest rate registered in the year even above the 36.1% inflation registered in 2020. Regarding the current account fiscal balances, as we can see in the graph, Argentina has registered another period of current account surplus, mainly fostered by the FX and tourist restrictions and a high primary fiscal deficit. On the fiscal front, even though primary fiscal account had a positive performance during the first half of 2021, public spending has accelerated since June ahead of elections and is expected to maintain this slow pace until the end of the year, accounting a primary fiscal deficit of 3.8% in terms of GDP. Lastly, it is important to mention that the Central Bank growth reserves remain weak, currently accounting around $42.5 billion, especially considering the sovereign foreign exchange debt profile. As we can see in the last graph of the slide, even considering that Argentina has been benefited from the IMF's special drawing rights to boost its FX reserves, a consistent and comprehensive macroeconomic program with the IMF is crucial in the short term to ease the burden of debt maturity. Summing up, we expect the Argentine economy continues to show high levels of difficulties, especially considering that there is not a clear macroeconomic path. We still believe that a new agreement with the IMF is critical to achieve lower economic uncertainties. Consequently, the main challenges that the current administration will also face are the reduction of the fiscal and monetary imbalances, the ability to contain inflation as the economic activity recovers and the maintenance of the current health situation, which has allowed the normalization of economic activities. 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 9 months of 2021. The company has reflected the effects of 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 peers ended as of and including December 31, 2018. Accordingly, the reported figures corresponding to the 9 months and third quarter 2021 include the effects of the adoption of inflationary accounting in accordance with the International Accounting Standards 29. For comparative purposes, the results restated by inflation corresponding to September 2020 contain the effect of year-over-year inflation as of September 2021, which amounted to 52.5%. In this presentation, we included some figures in historical values for the sake of clarity. Revenues for the first 9 months of 2021 increased by 51.5% to ARS 23.4 billion in nominal pesos, slightly lower than the 52.5% inflation, thus considering IAS adjustment, revenues increased by 2.9% from ARS 25.7 billion to ARS 26.5 billion in real pesos, mainly due to higher advertising revenues in the Broadcasting and Programming segment partially offset by lower programming revenues, compensated by the unconsolidation of the postal business and lower circulation and printing revenues in the Printing and Publishing segment. EBITDA in nominal terms reached ARS 4.1 billion from ARS 1.2 billion, mainly driven by higher advertising revenues in the Broadcasting and Programming segment and cost reductions in real terms greater than the decrease in revenues in the Printing and Publishing segment. Revenues for Broadcasting and Programming and for Printing and Publishing represented 52% and 42% of the total revenues, respectively, while revenues for the Other segment represented 6%. Net income for the period attributable to equity shareholders in real pesos amounted to ARS 1,318.6 million, a marked improvement from the 2020 figure of negative ARS 1,080.5 million. The increase was mainly the result of higher EBITDA and positive other income versus the loss in 9 months 2020 due to impairment of goodwill, partially offset by higher negative net -- financial results due to higher negative inflation adjustment and negative results of operations with bonds and notes compared to a gain in 2020 and lower income from unconsolidated affiliates, mainly in our subsidiary [Indiscernible] that emits the sports pay TV signal based sports due to lower rights for events during 2020 related to the COVID-19 restrictions. Moving on to Slide 7. Revenues for the third quarter '21 increased by 60.9% to ARS 9.1 billion in nominal pesos and EBITDA increased by 120% to ARS 1,723.8 million in nominal pesos. If we consider inflation adjustment, revenues increased by 6.6%, while EBITDA increased by 41.2%. Net income for the period attributable to equity shareholders in real pesos was ARS 319.3 million. Increase was mainly attributable to lower negative other income due to impairment of goodwill in 2020 and higher EBITDA, partially offset by lower equity and earnings from unconsolidated affiliates as explained for the 9-month period and higher negative net financial results due to higher negative inflation adjustments versus third quarter '20 and negative results of operations with notes and bonds compared to a gain in 2020. Slide 8, please. As the graphs show, revenues increased in real terms, while costs increased marginally with an EBITDA margin expansion in the third quarter '21 compared to third quarter '20. It should be noted that operational results for the third quarter '20 were still affected by the 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 revenues, although some easing had taken place when compared to the second quarter '20. 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 third quarter '20 for approximately ARS 257.9 million restated as of September 2021. If we detract the effect of the ATP savings in third quarter '20, EBITDA increase for third quarter '21 in real terms reaches 77%. In turn, as Valentina mentioned before, GDP showed signs of recovery during the third quarter 2021 as compared to 2020, mainly due to easing of restrictions in the seasonal jump of fiscal spending intensified by mid-term elections. We will discuss the breakdown by segment shortly, but first, let's review the debt financial position as per Slide 9. The total debt at September 2021 decreased 14.2% to ARS 2.2 billion due to lower bank overdraft and financial loans. Approximately 83.8% of our total debt, that is $18 million and 49.5% of the cash and equivalents, $20.3 million are in U.S. dollars. It is worth noting that in October 2021, our subsidiary, Gestión Compartida, canceled its U.S. dollars-denominated mentioned debt maturity of 2022 for $4.8 million. Overall, we continue to show a very healthy debt profile with 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 recoveries shown by the Argentine economy in the fourth quarter of 2020 and the first 9 months of 2021 positively impacted the segment, reversing the trend of interannual revenue fall we had seen during 2020. Revenues increased by 22% to ARS 5.4 billion in constant pesos in third quarter '21 compared to ARS 4.4 billion in third quarter '20. This was due to higher advertising revenues in constant pesos in Channel 13 and Radio Mitre, 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, negatively impacting the programming revenues. Cost of sales increased by 19.7% to ARS 3 billion. The increase was mainly caused by higher salaries and severance payments, fees for services, leases, maintenance and other production costs. The pandemic and the mandatory lockdown drastically changed the programs on air. Fictional 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 most of 2020. In addition, public events such as car races were suspended and union demand for salary increases were milder as economic activity and loss of jobs was affected by the lockdown, while the government assisted distressed companies with the ATP program. In turn, 2021 has seen higher union pressure as activity picked up in a high inflation context. Selling and administrative expenses increased 6.1% to ARS 1,014.6 million in constant pesos, mainly due to higher contingencies, partially offset by lower salaries, severance payments and restructuring costs. During this period, adjusted EBITDA increased 44.1% to ARS 1.4 billion, and the margin stood at 25.3%. Prime time from Channel 13 audience share decreased 15.6% and total time audience share decreased by 7.7%. This was the result of a better performance of our main competitor, Telefe Viacom. Despite this, our audience performance has allowed us to reach 35.9% of advertising market share with a power ratio above 1, outperforming the industry. Now let's move on to Printing and Publishing on the next slide. Total revenues decreased by 5.8% in real terms to ARS 4 billion in third quarter '21, mainly as a result of the unconsolidation of the postal business and circulation revenues in real terms, partially offset by higher printing services and advertising revenues. This segment has been transformed radically as traditional paper gives way to new digital performance. Digital advertising is gaining share as a percentage of total advertising revenue and payroll revenues are gaining share as a percentage of newspaper circulation revenues. Traditional circulation showed a decrease from levels for the same period of 2020 to 206,800 average daily copies with a decrease in share. While paying -- paywall subs reached 276,700 as of the third quarter '21, 61.6% higher than third quarter '20. Additionally, during third quarter '21, advertising revenues in nominal pesos increased by 65%, while interannual inflation at September 2021 was 52.5%. Cost of sales decreased by 6.3% to ARS 2.1 billion in third quarter '21 compared to ARS 2.2 billion in third quarter '20. The decrease was mainly the result of the unconsolidation of the postal business partially offset by higher salaries and printing costs. The segment had also been benefited by the ATP program during 2020. Selling and administrative expenses decreased by 10% to ARS 1.5 billion in third quarter '21. Regarding other segments, turn to Slide 12. Management has reassigned the revenues and expenses of its subsidiary, Oportunidades S.A., previously assigned to the other segments to Printing and Publishing in order to better reflect current operations. Accordingly, comparative figures for 2020 have been adjusted. During third quarter '21, net sales increased by 18.8% to ARS 659.2 million, mainly due to higher revenues at Gestión Compartida, partially offset by lower management fees at Grupo Clarín, which are eliminated in consolidation, measured in constant currency. EBITDA resulted in ARS 33.9 million. Gestión Compartida is a shared services company underwrites its revenues from administrators and corporate services to subsidiaries of Grupo Clarín. During 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 controlling shareholders and total float is approximately 20%. Regarding the current composition of our float, as shown on the slide, approximately 41% is international and 59% local. That concludes our comments for today. We will now take your questions. Anthony, we are ready for questions, please.

[Operator Instructions] It appears we have no questions at this time. I would like to turn the program back over to Samantha Olivieri 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 call us if you have any questions. I look forward to speaking with you about fourth quarter '21. Thank you very much, and have a great day.

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