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

Good morning, and welcome to Grupo Clarin's conference call, where we will discuss results for full year and last quarter 2021. My name is Gary, and I will be your conference operator today. [Operator Instructions] I will now introduce our speakers: Mrs. Samantha Olivieri, Investor Relations Officer; and Ms. Valentina Lopez, Senior Analyst. Additionally, Mr. Iván Acevedo, Controller; and Mr. 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 yesterday, March 10. 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 54-11-4309-7104. Grupo Clarín has also posted a webcast presentation that can be found at ir.grupoclarin.com. 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. Please note that this call is being recorded. It is now my pleasure to turn the call over to Mrs. Samantha Olivieri. Please go ahead.

Thank you, Gary. 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, let me pass the call to Valentina for the macro overview.

Thank you, Samantha. Let's move on to Slide 4. As we discussed in our previous call, the Argentine economy is going through a deep crisis with no precedent, worsened by the COVID-19 pandemic, which has caused, among other effects, the highest fiscal deficit in the last decade and a significant mandatory overcome that set a high floor for inflation in 2021 and 2022. In this complex environment, a second wave of COVID-19 took place in 2021 and though it is now overcome, new variants appeared by the end of the year. As a result, Argentina faced the largest surge in cases since the beginning of the pandemic. Although the number of deaths and hospitalizations were under control, thus, a low impact on the economic activity is expected. Moreover, the midterm elections were held in November of 2021. And from a macroeconomic and financial perspective, its results have weakened the government's position moving forward. Since the current administration lost quorum in the Senate, which means that it will depend on more agreements with the opposition to tackle the economic imbalances that the country faces. In addition, the costs associated with the required macroeconomic adjustment needed to address the prevailing imbalances will likely be greater given the negotiations with the IMF. Regarding the economic activity, GDP is expected to close the fourth quarter of 2021 with an increase of 1.5% as compared to the previous quarter. And of 8.9 -- sorry, 8.1% on an annual basis, registering a recovery after the plunge of 2020 and redeem pre-pandemic levels. For 2022, a normalization of the economic activity growth path is expected, increasing around 4%. It is worth noting that even though the government is tightening price control 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 on average more than salaries, regulated tariffs and official FX rate. At the end of December of 2021, inflation was 50.9% on an annual basis, one of the highest rates registered in the last 30 years. A non-mindful change is expected going forward. Regarding the current account balance, as we can see in the graph, Argentina has registered another period of current account surplus and is expected to reach a surplus of 1% of GDP by the end of the year. On the fiscal front, primary fiscal accounts had a positive performance during the period, mainly boosted by export duty revenues, wealth tax collection and lower COVID-related expenditures, partially offset by an acceleration of the public spending in the second half of the year. 2021 is expected to close accounting a primary fiscal deficit of 3% in terms of GDP. For 2022, a lower fiscal deficit is expected on one hand as part of the agreement with IMF, which requires a fiscal adjustment path, and on the other hand, due to lower COVID-related expenses. Lastly, it is important to mention that the Central Bank gross reserves remain weak, currently accounting around $39.6 billion. But as we can see in the last graph of the slide, the debt profile, considering the new agreement with the IMF, would ease the burden of debt maturities for the coming years. Summing up, we expect the Argentine economy to continue showing high levels of difficulties worsened by the tensions in the geopolitical front, mainly due to the conflict between Russia and Ukraine. We still believe that the new agreement with the IMF and the macroeconomic program would contribute to achieve a lower economic uncertainty. Now I will pass the call back to Samantha.

Thank you, Valentina. Having gone through the macro overview, please turn to Slide 6 for a quick review of some of the highlights for 2021. We ended the year with a positive net income of ARS 1 billion, reversing the trend of previous years. Our adjusted EBITDA increased 27.4% in real terms and margin reached 15.5%. We consolidated our online content proposal, reaching 304,600 paying digital subs in clarin.com. Fiction returned to El Trece screen during fourth quarter '21, and our prime time share for the quarter increased to 36.1%. We launched our new Investor Relations website, improving our communication with investors and stakeholders with a modern design and responsive content. Please turn to Slide 7 for a brief analysis of Grupo Clarín's financial performance for the full year 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 the full year and last quarter 2021 includes 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 December 2020 contain the effect of year-over-year inflation as of December 2021, which amounted to 50.9%. In this presentation, we included some figures in historical values for the sake of clarity. Revenues for the full year of 2021 increased by 48.2% to ARS 33.8 billion, slightly lower than the 50.9% inflation. Thus, considering IAS adjustment, revenues decreased by 0.2% from ARS 40.2 billion to ARS 40.1 billion in real pesos, mainly due to the unconsolidation of the postal business and lower circulation and printing revenues in the Digital and Printed Publications segment compensated by higher advertising revenues in the Broadcasting and Programming segment, which were partially offset by lower programming revenues. EBITDA in nominal terms reached ARS 5.3 billion from ARS 2.8 billion, mainly driven by the higher advertising revenues in the Broadcasting and Programming segment and cost reductions in real terms greater than the decrease in revenues in the Digital and Printed Publications segment. Revenues for Broadcasting and Programming and for Digital and Printed Publications represented 53% and 41% of total revenues, respectively, while revenues for the Other segment represented 6%. The net income for the period attributable to equity shareholders in real pesos amounted to ARS 1,039 million, a marked improvement from the 2020 figure of ARS 414.1 negative million. The increase was mainly the result of a higher EBITDA and positive other income versus the loss in 2020 due to impairment of goodwill, partially offset by higher negative net financial results due to negative inflation adjustment and negative result of operations with notes and bonds compared to a gain in 2020 and lower income from unconsolidated affiliates. Moving on to Slide 8. Revenues for the fourth quarter '21 increased by 41.2% to ARS 10.5 billion in nominal pesos and EBITDA decreased by 25% to ARS 1,143.3 million in nominal pesos. If we consider inflation adjustment, revenues decreased by 7.5%, while EBITDA decreased by 57.7%, mainly due to lower EBITDA and Broadcasting and Programming and Digital and Printed Publications. Net income for the period attributable to equity shareholders in real pesos was negative ARS 414.2 million. The decrease was mainly attributable to lower EBITDA. Slide 9, please. As the graphs show, revenues decreased in real terms, while costs increased marginally with an EBITDA margin contraction in fourth quarter '21 to fourth quarter '20, mainly attributable to lower programming and circulation revenues, partially offset by higher advertising revenues and higher cost of sales mainly from higher programming costs as a more attractive content offer was displayed, including the return of fiction production in El Trece. We will discuss the breakdown by segment shortly, but first, let's review the debt financial position as per Slide 10. The total debt as of December 2021 decreased 34.6% to ARS 1.7 billion due to lower financial loans. Approximately 77.8% of our total debt that is $12.4 million and 38.3% of the cash and equivalents or $16 million are in U.S. dollars. As we mentioned in our previous call, in October 2021, our subsidiary, Gestión Compartida, canceled its U.S. dollars-denominated debt maturity of 2022 for an amount of $4.8 million. Overall, we continue to show a healthy debt profile with low leverage. Moving on to the segment breakdown. We begin with Broadcasting and Programming division on Slide 12. Revenues decreased by 5.6% to ARS 6.1 billion in constant pesos in fourth quarter '21 compared to ARS 6.5 billion in fourth quarter '20. This was due to lower programming revenues, partially offset by higher advertising revenues in constant pesos in Channel 13 and Radio Mitre. 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. Average pay TV services prices during 2021 were lower than inflation for the same period, negatively impacting programming revenues in real terms. Cost of sales increased by 19.8% to ARS 3.6 billion. The increase was mainly caused by higher programming and satellite costs, 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 during 2020. Fixed and 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, while the more appealing, and thus costly, programming was aired during 2021. In addition, public events, such as car races, were suspended during 2020 and unit demand for salary increases were milder as the economic activity and loss of jobs was affected by the lockdown, while the government assisted distressed companies with the ATP program. In turn, 2021 had seen higher union pressure as activity picked up in a high inflation context. Selling and administrative expenses increased 1.8% to ARS 1,314.1 million in constant pesos. During this period, adjusted EBITDA decreased 43.6% to ARS 1.3 billion and the margin stood at 20.6%. Prime time for Channel 13 audience share increased 3.1%, while total time audience share decreased by 2.8%. This was the result of a more attractive screen. Regarding our content, it is worth mentioning that fiction return to El Trece's screen on fourth quarter '21 with a daily prime time soap opera 1-5/18. Our audience performance has allowed us to reach 36.1% of advertising market share with a power ratio above 1, outperforming the industry. Now let's move on to Digital and Printed Publications on the next slide. Total revenues decreased by 16.1% in real terms to ARS 4.3 billion in fourth quarter '21, mainly as a result of the unconsolidation of the postal business and lower circulation revenues. This segment has transformed radically as traditional paper gives way to new digital formats. Digital advertising is gaining share as a percentage of total advertising revenue and payable 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 197,900 average daily copies with a decrease in share. While paying payroll subs reached 304,600 as of fourth quarter '21, 73.7% higher than fourth quarter 2020. Additionally, during fourth quarter '21, advertising revenues in nominal pesos increased by 47%, while annual inflation as of December 2021 was 50.9%. Cost of sales decreased by 10.8% to ARS 2.4 billion in the fourth quarter '21 compared to ARS 2.7 billion in fourth quarter '20. The decrease was mainly the result of the unconsolidation of the postal business. Selling and administrative expenses decreased by 4.1% to ARS 1.9 billion in fourth quarter '21, mainly due to lower distribution costs as printed circulation decreased. Regarding Other segments, turn to Slide 14. Management has reassigned the revenues and expenses of its subsidiary, Oportunidades S.A., previously assigned to the Other segment to Digital and Printed Publications in order to better reflect current operations. Accordingly, comparative figures for 2020 have been adjusted. During fourth quarter '21, net sales increased by 27.6% to ARS 663.0 million, mainly due to higher revenues at Gestión Compartida, partially offset by lower management fee revenues at Grupo Clarín, which are eliminated in consolidation, measured in constant currency. EBITDA resulted in a negative ARS 214.6 million. Gestión Compartida is a shared services company and derives its revenues from administrative and corporate services rendered to Grupo Clarín and its subsidiaries which are eliminated in consolidation. During the last years, 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 15 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 composition of our float, as shown in the slide, approximately 41% is international and 59% local. That concludes our comments. We will now take your questions. Operator, we are ready for questions, please.

[Operator Instructions]

We have some comments and 2 questions from [ Uluk Binggol ] with [ Imperial ] Capital. Uluk says, "Congratulations on 2021 results. Company's net cash position has significantly strengthened over the past couple of years. What are your thoughts on how to use excess cash flows going forward?" And regarding the second question, what would you say is the sustainable EBITDA margin for the Printing and Publishing business?

Thank you, Uluk. Regarding your first question about the excess cash flows moving forward. First, we have to say that the cash flows are at Broadcasting and Programming segment, while debt is mainly allocated in Digital and Printed Publications. So we would have to first attend the debt at these segments. But moving forward, once the debt has been repaid. We could see if the financial statements allow for it to be able to start paying dividends to our shareholders again. For now, this financial statement, we are required to allocate our results to replenish the legal reserve according to Argentine law, which had been used with losses for previous years. Regarding the second question about sustainable EBITDA for the Digital and Printed Publication segment. We see the current margin, which is around 6%, as sustainable, although we're working on our digital proposal and the transformation of this segment. So we feel that this margin could have an increasing path going forward. I hope that has answered the question. If you have any additional questions regarding my answers, please type again.

[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, Gary. This was Valentina's last webcast presentation with the company. On behalf of Grupo Clarín, I'd like to express our gratitude for their professionalism with which she has fulfilled her role and wish her the best in her new career path. I thank you all for your attendance today. We appreciate your interest in the company and your questions. Please do not hesitate to contact the IR team if you have any questions. I look forward to speaking with you about first quarter '22. Thank you very much. Have a great day.

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