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 first quarter 2022. My name is [ Vaishnavi ], and I will be your conference operator for 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 Ms. Samantha Olivieri, 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 Wednesday, May 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 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. It is now my pleasure to turn the call over to Ms. Samantha Olivieri. Please go ahead.

Thank you, [ Vaishnavi ]. Good morning, everyone. Let me quickly outline the agenda for today's call. We will start with a brief macro overview, followed by a 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, I will continue with a macro overview. Let's move on to Slide 4. As we discussed in our previous calls, Argentina's economy has gone through an unprecedented crisis worsened by the COVID-19 pandemic. This caused, among other effects, the highest fiscal deficit in the last decade and a significant loan carryover derived from its almost entirely monetary financing, which set a high floor for inflation in 2021 and 2022. Already under the framework of a new program of extended facilities for the IMF, of which its goals are currently under evaluation by the entity's technical staff, we will review the economic performance so far and the prospects for the year. As shown on the graph, the economic activity has recovered in 2021 all the loss from 2020 but is still behind 2017 levels, and a mild recovery is expected for the first quarter. Nonetheless, the loss of purchasing power of wages and pensions and the contractive nature of the IMF program for the private sector has triggered downward revisions of the GDP estimates for the year. It is worth noting that even though the government is tightening price controls and reinforcing its intervention on the FX market as a main way to anchor inflation, prices keep accelerating at a higher-than-expected rate, increasing more than salaries, regulated tariffs and official FX rate. Inflation for the first quarter -- for the first 4 months of 2022 was 23.1%, and year-over-year inflation as of April reached 58%. The price index has accumulated 4 consecutive months of increase as of March. And with April inflation of 6%, expectations for this year, according to the Central Bank's expectation surveys, appear to place the minimum inflation rate at 65%. And like previous years, this price acceleration isn't the result of jumps in the exchange rate or utility price adjustments. To tackle this re-acceleration of prices and in line with the IMF agreement, the Central Bank is turning the bias of its policy. Under this responsive strategy, the monetary authority has been accelerating the pace of the peso depreciation: 4% in April and May versus 2.6% on average in the first quarter, while at the same time raising the nominal reference interest rates for the fifth time in the year towards a less negative territory. We expect this dynamic of inflation beating the interest rate in pesos and the official exchange rate sliding to continue in the coming months. Having gone through the macro overview, please turn to Slide 6 for a quick review of some of the highlights for 2022. We continue to consolidate our online content proposal, reaching 366,100 paying digital subs in Clarín.com by the end of March '22, 81% higher than March '21. After a 2-year hiatus due to the pandemic, the key players of the farming sector met again at Expoagro, the largest agribusiness open-field exhibit in the Southern Hemisphere with more than 100,000 visitors, generating a volume of agribusiness transactions for an estimate of $1.5 billion. Organized by Exponenciar, a company owned by Clarín and La Nación, the show works as a grand knowledge market where attendees can experience the transformation of the sector. With a more appealing content in El Trece screen, our open TV stations, we have improved our prime time rating measures, especially from mid-March. Prime time audience share reached 34.7% in April 2022, while the average for the first quarter '22 was 39 -- 31.9%. Radio Mitre, our AM radio station, maintained its leading position. During March, it reached an audience share of 35.7%, surpassing the second-place radio station by 20 points. Now please turn to Slide 7 for a brief analysis of Grupo Clarín's financial performance for the first quarter '22. The company has reflected the effects of inflation adjustment adopted by the 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 first quarter '22 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 March '21 contain the effect of year-over-year inflation as of March '22, which amounted to 55.1%. In this presentation, we included some figures and historical values for the sake of clarity. Revenues for the first quarter '22 increased by 50.5% to ARS 9.9 billion in nominal pesos, slightly lower than the 55.1% inflation. Thus, considering IAS adjustment, revenues decreased by 1.5% from 7 -- ARS 10.7 billion to ARS 10.5 billion in real pesos, mainly due to lower programming revenues and other revenues in the Broadcasting and Programming segment, compensated by higher circulation revenues in the Digital and Printed Publications segment. EBITDA in nominal terms reached ARS 1.3 billion from ARS 1.2 billion, mainly driven by the EBITDA generated by school textbooks in the Digital and Printed Publications segment, partially offset by lower EBITDA in Broadcasting and Programming due to higher content costs. Revenues for Broadcasting and Programming and for Digital and Printed Publications represented 44% and 48% of total revenues, respectively, while revenues for the Other segment represented 8%. Net income for the period attributable to equity shareholders in real pesos amounted to ARS 53.9 million from the 2021 figure of ARS 1,056.1 million. The decrease was mainly the result of lower EBITDA in real terms, higher negative net financial results, lower income from unconsolidated affiliates and higher income tax. The variation of negative financial results is explained by a higher negative result of operations with notes and bonds and higher negative inflation adjustments, partially offset by lower interest on debt attributable to lower debt level. The lower income from unconsolidated affiliates is mainly the result of lower income in our subsidiary, Tele Red Imagen S.A., that emits a sports pay TV segment base of sports due to lower rights for events during first quarter '21 related to the COVID-19 restrictions, and negative net income in BIMO, partially offset by higher net income in our subsidiary, Papel Prensa. Slide 8, please. As the graph show, revenues decreased marginally in real terms, while cost of sales increased by 13.6%, resulting in an EBITDA margin contraction in first quarter '22 compared to first quarter '21, mainly attributable to lower programming revenues and higher content costs. We will discuss the breakdown by segment shortly, but first, let's review the debt financial position as per Slide 9. The total debt as of March '22 decreased by 33.9% to ARS 1.8 billion due to lower financial loans. Approximately ARS 76.7 million of our total debt, that is $12.2 million; and 39.8% of cash and equivalents, that is $17.1 million, are in U.S. dollars. The reduction in debt is explained mainly by the cancellation of debt maturities in Gestión Compartida during the last quarter of 2021 and by a higher interannual inflation rate as compared to the peso depreciation. We are working on refinancing the 2022 U.S. dollar debt maturity. Overall, we continue to show our manageable debt profile with a low leverage. Moving on to the segment breakdown. We begin with the Broadcasting and Programming division on Slide 11. Revenues decreased by 9.3% to ARS 4.9 billion in constant pesos in first quarter '22 compared to ARS 5.4 billion in first quarter '21. This was mainly due to lower programming revenues and lower other revenues for car race events as races have been rescheduled from May 2020 to first quarter '21. The car race operation was sold and will be unconsolidated from April '22. Regarding the programming revenues, our subsidiary, ARTEAR, sells its content to cable TV operators, which are affected by their capacity to increase prices for pay TV services to their subscribers. Average pay TV services price increases during 2021 and first quarter '22 were lower than inflation for the same period, negatively impacting programming revenues. Cost of sales increased by 15% to ARS 3.2 billion. The increase was mainly caused by higher content costs as fiction returned and a more appealing programming was aired in El Trece channel. Selling and administrative expenses decreased 8.4% to ARS 1,092.4 million in constant pesos, mainly as a result of lower salaries and severance payments. During this period, adjusted EBITDA decreased 59.4% to ARS 0.6 billion, and the margin stood at 11.5%. It's worth mentioning that the first quarter '21 EBITDA margin was exceptionally high as advertising revenues were higher in that quarter than is seasonally usual after most of COVID-19 pandemic's restrictions were lifted by the end of fourth quarter '20, while content production hadn't been normalized. Prime time for Channel 13 audience share increased 3.7%, and total time audience share decreased by 5.6%. This was the result of a better performance of our main competitor, Telefe Viacom. Despite this, our audience performance has allowed us to reach 33.5% of advertising market share with a power ratio above 1, outperforming the industry. With a more appealing content in El Trece screen, our open TV station, we have improved our prime time rating measures, especially from mid-March, and prime time audience share reached 34.7% in April '22. Now let's move on to the Digital and Printed Publications on the next slide. Total revenues increased by 7% in real terms to ARS 5.3 billion in first quarter '22 mainly as a result of circulation revenues from school textbooks as school activity returned to normal after 2 years under the COVID-19 pandemic, partially offset by lower other sales and advertising. School textbooks sales typically occur during February and March of each year, and the greater proportion of sales is derived from government wholesale purchases. This segment has been transformed radically as traditional paper gives way to new digital formats. Digital advertising is gaining share as a percentage of total advertising revenue, and paywall revenues are gaining share as a percentage of newspaper circulation revenues. Traditional circulation showed a decrease from levels for the same period of 2021 to 183,200 average daily copies with a decrease in share, while same paywall subs reached 366,100 as of first quarter '22, 81% higher than first quarter '21. Additionally, during first quarter '22, advertising revenues in nominal pesos increased by 47%, while interannual inflation as of March '22 was 55.1%. Cost of sales increased by 10.3% to ARS 2.8 billion in first quarter '22 compared to ARS 2.6 billion in first quarter '21, mainly related to the cost of school textbooks. Selling and administrative expenses decreased by 4% to ARS 1.8 billion in first quarter '22, mainly due to lower distribution costs, partially offset by higher marketing and advertising costs and salaries. Regarding Others segment, turn to Slide 13. Management has reassigned the revenues and expenses of its subsidiary, Oportunidades S.A., previously assigned to Others segment to Digital and Printed Publications in June 2021 in order to better reflect current operations. Accordingly, comparative figures for the first quarter '21 have been adjusted. During first quarter '22, net sales in real terms increased by 29% to 100 -- I'm sorry, ARS 898.8 million mainly due to higher revenues at Gestión Compartida as a result of higher revenues from insurance policy businesses and clients incorporated during the second half of 2021. EBITDA resulted in ARS 206.7 million. Gestión Compartida is a shared services company and derives its revenues from administrative and corporate services branded through Grupo Clarín and its subsidiaries, which are eliminated in consolidation. 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 15 for a review of 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. We will now take your questions. Operator, we are ready for questions, please.

[Operator Instructions]

The first question comes from [ Mehmet Bingo ] with [ Imperial Capital ]. Should we expect a recovery in your broadcasting EBITDA margin in the remainder of the year? Could you please provide some guidance?

Thank you, [ Marcella ]. We should expect a recovery. And thank you for your question. We should expect a recovery in margin since advertising is a very seasonal source of revenues, and usually, first quarter of every year isn't a high advertising revenue quarter, while the last quarter this year is the highest advertising revenue quarter. Guidance, I think, should be around -- we will see about 20% or late tens. I hope that clears the question.

[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. I want to thank you all for your attendance today. We appreciate your interest in the company and your questions. Please do not hesitate to contact us if you have any further questions. I look forward to speaking with you about second quarter '22. Have a nice day.

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