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

Good morning, everyone, and welcome to Grupo Clarín's conference call where we discuss results for the first half and second quarter 2022. My name is Jamie, 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 the call. I will now introduce our speaker, Ms. Samantha Olivieri, Head of Investor Relations. Additionally, Iván Acevedo, Controller; and Marcelo Boncagni, Audit Manager will also be available for today's question-and-answer session. The team will be discussing the results as per the earnings release distributed last Thursday, 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 Clarin has also posted a webcast presentation that can be found at ir.grupoclerin.com. Comments made by management may contain forward-looking statements about Grupo Clarin's future performance, plans, strategies and targets. 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 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 market 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 conference call over to Ms. Samantha Olivieri. Sam, please go ahead.

Thank you, Jamie. 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 decisions. Later, we will review the current ownership structure of the company. Let's move on to Slide 4. Argentina's economy closed its first half of the year with the most favorable trade terms in its history and Brazil growing above forecast with exports growing mainly the effect of higher prices at double digits for the second year in a row, which are expected to account for $90 billion, $35 billion above the 2020 figure. These targets are still shadowed by a warning inflationary acceleration and some lack of credibility regarding the fiscal monetary and foreign exchange ordering committed before the IMF. To this must be added to the recent change in economic authorities whose first policy signals failed to meet expectations, even though they have reaffirmed their commitment to the target of 2.5 primary fiscal deficit agreed with the IMF for the current year and the upward adjustment of interest rates carried out by both the Central Bank and the treasury. Going into the numbers, July inflation rose to 7.4%, the highest registered for the last 20 years and accumulates 46.2%, reaching 71% year-over-year. Because of this worsen dynamic estimates for 2022 are being revised upwards and are in the range of 90% to 95% according to the Central Bank expectation survey. It is worth mentioning that unlike previous years, this price acceleration isn't the result of jumps in the official exchange rate or utility price adjustments, although moving forward, as part of the effort to tackle fiscal imbalances, the government has announced a cutback of utility prices subsidies adding pressure to the inflation expectations. Central Bank hasn't been able to accumulate reserves during 2022, even with the favorable trade setting mentioned before. In fact, the stock of gross reserves is currently around $37 billion $2.7 billion below the $39.7 billion figure at the end of 2021. It is worth mentioning that during the last 45 days, the Central Bank has lost just over $5.5 billion. This decrease places the net reserves at a critical level and a priority for the new economic team. In addition, to finance fiscal deficit, the government has been continuously issuing sovereign debt and local currency, which accounts for around 40% since the beginning of the year, with an increase in percentage of it being funded by the Central Bank. As of August 1, the monetary base had increased to ARS 4.4 trillion, and the liabilities of SET entity had increased to ARS 6.7 trillion, 153% of the monetary base resembling that of the month prior to the 1989 hyperinflation. Since foreign exchange imbalance is always the reverse side of monetary imbalance, this net emission is under the current uncertainty state, the main reason for the war in jump in the price of financial dollars. 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 more than 500,000 total subs and 394,200 paying digital subs in clarin.com by the end of June '22, 76% higher than June '21. With a more appealing content in El Trece screen our open TV station, we have improved prime-time rating measures, particularly from mid-March. Prime-time audience share reached 34.7% during second quarter '22, while the average for second quarter '21 was 27%. We have resumed content production for third parties. From July 2022, HBO started broadcasting an 8-episode series produced by Polka, Maria Marta, [Foreign Language] country, based on one of the most publicly spoken of crimes of the year 2002. Our commitment with quality journalism and innovative content is central to our strategy. During the first half of '22, our media received multiple international recognitions, including the first prize in the Best Audience Engagement in the 8th edition of the LATAM Digital Media Awards of the World Association of News Publishers for the special letters from the other side in commemoration of the 40th anniversary of the Malvinas War. Please turn to Slide 7 for a brief analysis of Grupo Clarin's financial performance for the first half of 2022. The company has reflected the effects of inflation adjustment adopted by Resolution 777/18 of the [Foreign Language], 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 half and second quarter 2022 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 2021, contain the effect of year-over-year inflation as of June 2022, which amounted to 64%. In this presentation, we included some figures and historic values for the sake of clarity. Revenues for the first half of 2022 increased by 59.2% to ARS 22.6 billion in nominal pesos, close to the 64% inflation. Thus, considering IAS adjustment, revenues increased by 1.3% from ARS 25.4 billion to ARS 25.8 billion in real pesos mainly due to higher circulation revenues in digital and printed publications partially offset by lower revenues in Broadcasting and Programming segment. EBITDA in nominal terms reached ARS 3.2 billion from ARS 2.4 billion mainly driven by the EBITDA generated by school textbooks in the digital and printed publications segment. Revenues for Broadcasting and Programming and for Digital and Printed publications represented 48% and 45% of total revenues, respectively, while revenues for the Other segment represented 7%. Net income for the period attributable to equity shareholders in real pesos amounted to ARS 132 million from the 2021 figure of ARS 1,499.5 million. The decrease was mainly the result of lower EBITDA in real terms, higher negative net financial results, negative other income and expenses net versus a positive figure in 2021, lower income from unconsolidated affiliates and higher income tax. The variation of the negative financial results is explained by a higher negative inflation adjustment. The lower income from unconsolidated affiliates is mainly the result of lower income in our subsidiary, [Foreign Language] [indiscernible] Sports, Pay-TV signal [indiscernible] as a result of higher costs with the normalization of sports events after the pandemic, combined with lower programming revenues in real terms and higher net income -- higher negative net income in BIMO partially offset by higher net income in our subsidiary [indiscernible] which is mainly due to a higher gross margin related to an increase in volumes of paper sold with a higher domestic demand. Regarding BIMO, after 2 years of operations, I have decided to put BIMO digital wallet on hold to reassess the strategy for the products. Moving on to Slide 8. Revenues for the second quarter '22 increased by 66.7% to ARS 12.7 billion and EBITDA increased by 59% to ARS 1,815.4 million. If we consider inflation adjustment, revenues increased by 4%, while EBITDA increased by 1.4% mainly due to higher EBITDA and Digital and Printed Publications, partially offset by lower EBITDA in Broadcasting and Programming. Net income for the period attributable to equity shareholders in real pesos was ARS 68.8 million. The decrease was mainly attributable to higher negative net financial results and negative other income and expenses net versus the positive figure in 2021. Slide 9, please. As the graphs show, revenues increased 4% in real terms, while cost of sales increased by 9.8%, resulting in a slight EBITDA margin contraction in second quarter '22 compared to second quarter '21, mainly attributable to higher content costs. 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 June 2022 decreased 25.3% to ARS 2.3 billion due to the lower financial loans. Approximately 63.6% of our total debt that is $11.8 million and 39.8% of cash and equivalents or $17.1 million are in U.S. dollars. The reduction in debt is explained mainly by the cancellation of U.S. debt maturities [indiscernible] during the last quarter of 2021 and a higher interannual inflation rate as compared to the peso depreciation, partially offset by higher bank overdraft. We refinanced USD 9 million of our July 2022 U.S. dollar debt maturities extending their maturity for 2 years. Overall, we continue to show a manageable debt profile with low leverage. Moving on to the segment breakdown. We begin with Broadcasting & Programming division on Slide 12. Revenues increased by 1.7% to ARS 7.2 billion in second quarter '22 compared to ARS 7 billion in second quarter '21. This was mainly due to higher revenues from fiction production sold to third parties, partially offset by lower programming revenues and lower other revenues from car race events as the operation was sold and has been unconsolidated from April 2022. Regarding programming revenues, our subsidiary [indiscernible] 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 half of 2022 were lower than inflation for the same period, negatively impacting programming revenues. Cost of sales increased by 10.8% to ARS 4.1 billion. The increase was mainly caused by higher content cost and the more appealing programming was -- as the more appealing programming was aired in [Foreign Language] channel and production of content for third parties was resumed, partially offset by lower car race events costs related to the consolidation of [ Autosport ]. Selling and administrative expenses decreased 2.4% to ARS 1,393.3 million in constant pesos, mainly as a result of lower salaries and severance payments. As a result, during this period, adjusted EBITDA decreased 13.3% to ARS 1.6 billion, and the margin stood at 22.9% higher than the first quarter '22 figure of 11.5%. Prime-time for Channel 13 audience share increased 28.7% and total time audience share increased by 12.7%. This was the result of a more appealing content in El Trece screen our open TV station. Our audience performance has allowed us to reach 35.1% of advertising market share with a power ratio above 1, outperforming the industry. Now let's move on to the Digital and Printed Publications on the next slide. Total revenues increased by 7.2% in real terms to ARS 5.9 billion in second quarter '22, mainly as a result of higher circulation revenues from higher book sales from our bookstore [indiscernible] as commercial activity normalized after the pandemic and the international book fair returned higher revenues from school textbooks and school activity returned to normal after 2 years under the COVID-19 pandemic and higher payroll revenues, partially offset by lower traditional circulation revenues and also higher advertising revenues from programmating, advertising and agreements with Google and Facebook. Additionally, during second quarter, advertising revenues in nominal pesos increased by 76%, while interannual inflation as of June 2022 was 64%. This segment has been transformed radically as traditional paper gives way to new digital forms. 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 showed a decrease from levels for the same period of 2021 to 176,000 average daily copies with a decrease in share while paywall subs reached 394,200 as of second quarter '22 75.6% higher than second quarter '21. As of this quarter, we have changed the key performance indicator related to circulation share comparing Clarin Newspaper with our main competitor [indiscernible] since several low circulation bonafide newspapers don't have their circulation verified by the [indiscernible] and obtaining reliable estimate is increasingly difficult. Cost of sales increased by 9.6% to ARS 3.4 billion in second quarter '22 compared to ARS 3.1 billion in second quarter '21, mainly related to the cost of books sold and higher international prices of newsprint compensated by lower consumption. Selling and administrative expenses decreased by 3.7% to ARS 2.2 billion in second quarter '22, mainly due to lower distribution costs and lower bad debt. Regarding other segments, turn to Slide 14. During second quarter '22, net sales in real terms increased by 5.3% to ARS 923.8 million mainly due to higher revenues at [ Gestión Compartida ] as a result of higher revenues from insurance policy businesses and clients incorporating during the second half of 2021 and higher fees for services related to IT implementations to related parties, which are eliminated in the consolidation. EBITDA resulted in ARS 13.3 million. [ Gestión Compartida ] is a shared services company and derives its revenues from administrative and corporate services rendered to Grupo Clarin 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 16 for a quick 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 41% is international. That concludes our comments. We will now take your questions. Jamie, we're now ready for questions, please.

[Operator Instructions] And ladies and gentlemen, it appears that we have no questions at this time. I'd like to turn the program back over to Samantha Olivieri for her closing remarks.

Thank you, Jamie. I want to thank everyone for your attendance today. We appreciate your interest in the company. Please do not hesitate to contact the IR team if you have any questions. I look forward to speaking with you about third quarter '22. Thank you. Have a great day.

And ladies and gentlemen, the conference has now concluded. We thank you for joining today's presentation. You may now disconnect your lines.