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 2022. My name is Chad, and I will be your conference operator today. [Operator Instructions] This call is for investors and analyst 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, Ivan 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 Friday, November 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 irgrupoclarin.com under the Financial Information 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 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 Eastern Europe conflict, newer 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, Chad. 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. Let's move on to Slide 4. As we've been describing in the past quarterly presentations, Argentina's economy continues to register acceleration in the inflation rate. In addition, the attempts to bring the interest rates and exchange rate closer to inflation result in an acceleration of the nominality of the economy, which, if continues, could challenge the Central's Bank ability to maintain the level of reserves. Going into the numbers, September inflation rose to 6.2%, somewhat lower than the previous months which registered a record high in July and accumulates 66.1%, reaching 83% year-over-year. Estimates for 2022 are being revised upwards and are entering the triple-digit range according to the Central Bank expectation survey. Current estimates for 2023 in the best case scenario are of [null] GDP growth following a 4.5% growth expected for the current year and 100 inflation rate. Given the scenario, there seems to be some level of consensus between the governing party and the opposition about the need for a stabilization plan to anchor general prices. Any stabilization plan must initially correct relative prices, including official FX rate, while ensuring a quick closure of the fiscal deficit that puts an end to the direct monetary financing of the treasury whether by Central Bank transfers or dividends or indirect financing through purchase of sovereign debt. Business come hand-in-hand with prices and salaries agreement to bring an end to the indexation of salaries and pensions. The presentation, in agreement with the IMF staff of a consistent monetary and fiscal road map for the years to come, would contribute to anchor expectations about the future economic performance. Having gone through the macro overview, please turn to Slide 6 for a quick review of some highlights for 2022. We continue to consolidate our online content proposal, reaching more than 550,000 total subs and 429,500 paying digital subs in Clarin.com by the end of September '22, 50% -- 55% higher than September '21. With focus on its digital strategy, Clarin has reorganized its newsroom with real-time data about what and how content is consumed as a pillar for our journalists. With a more appealing content in El Trece screen, our open TV station, we have improved our prime time rating measures, particularly from mid-March. Prime time audience share reached 34.5% during third quarter '22, while the average for the third quarter '21 was 28%. Please turn to Slide 7 for a brief analysis of Grupo Clarín's financial performance for the first 9 months of 2022. 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 periods ended as of and including December 31, 2018. Accordingly, the reported figures corresponding to the 9 months and third quarter 2022 includes the effects of the adoption of inflationary accounting in accordance with International Accounting Standard 29. For comparative purposes, the results restated by inflation corresponding to September 2021 contain the effect of year-over-year inflation as of September 2022, which amounted to 83%. In this presentation, we included some figures in historical values for the sake of clarity. Revenues for the first 9 months of 2022 increased by 60% to ARS 37.4 billion in nominal pesos. Considering IAS adjustment, revenues decreased by 2.8% from ARS 48.5 billion to ARS 47.1 billion in real pesos mainly due to lower programming and advertising revenues in the Broadcasting and Programming segment, partially offset by higher circulation revenues in Digital and Printed Publications. EBITDA in nominal terms reached ARS 5.6 billion from ARS 4.1 billion and ARS 7 billion from ARS 8.5 billion in real terms. Revenues for Broadcasting and Programming and for Digital and Printed Publications represented 49% and 44% of the 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 a loss of ARS 496 million from the 2021 figure of ARS 2,413.4 million. The decrease was mainly the result of the lower EBITDA in real term, higher negative net financial results, negative other income and expenses net versus a positive figure in 2021 and lower income from unconsolidated affiliates, partially offset by income tax. The variation of the negative financial result is explained by a higher negative inflation adjustment. The lower income from unconsolidated affiliates is mainly the result of negative net income in BIMO after operations were suspended, partially offset by higher net income in our subsidiary, Papel Prensa, which is mainly due to a higher gross margin related to an increase of volumes of paper sold with a higher domestic demand. Moving on to Slide 8. Revenues for the third quarter '22 increased by 61.4% to ARS 14.7 billion in nominal pesos and EBITDA increased by 40% to ARS 2,419.1 million in nominal pesos. If we consider inflation adjustment, revenues decreased by 10.1% while EBITDA decreased by 20.4% mainly due to lower EBITDA in Broadcasting and Programming and Digital and Printed Publications. Net income for the period attributable to equity shareholders in real pesos was negative ARS 657 million. The decrease was mainly attributable to higher negative net financial results explained by inflation adjustment results under IAS 29, lower EBITDA and negative earnings from unconsolidated subs explained mainly by the negative results from BIMO after operations were suspended, partially offset by lower income tax. Slide 9, please. As the graphs show, revenues decreased 10.1% in real terms while costs decreased by 7.7%, resulting in an EBITDA margin contraction in third quarter '22 compared to third quarter '21. Mainly attributable to lower revenues in real terms driven by lower programming revenues in Broadcasting and Programming, which decreased 28.9%, and lower advertising across all segments, which decreased 8.2%, partially offset by lower cost mainly lower salaries and severance payments, lower contingencies and lower costs following the unconsolidation of the car race business. 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 September 2022 decreased 29.2% to ARS 2.7 billion due to lower financial loans. Approximately 63.1% of our total debt, that is USD 11.8 million, and [ 35.8% ] of cash and equivalents, that is $16.2 million, are in U.S. dollar-denominated accounts. The reduction in debt is explained mainly by the cancellation of U.S. dollar maturities in Gestión Compartida during the last quarter of 2021, lower U.S. dollar debt related to import finance maturities in [indiscernible] and higher interannual inflation rate as compared to the peso depreciation, partially offset by higher bank overdrafts. During this quarter, we refinanced $9 million of our July 2022 U.S. dollar debt maturity, 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 and Programming division on Slide 12. Revenues decreased by 15.8% to ARS 8.3 billion in constant pesos in third quarter '22 compared to ARS 9.9 billion in third quarter '21. This was mainly due to lower programming revenues and advertising revenues at ARTEAR and lower other net revenues from car race events as the operation was sold and has been unconsolidated from April 2022. Regarding 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 increase during 2021 and 9 months '22 were lower than inflation for the same period, negatively impacting programming revenues. In addition, international segment revenues are in U.S. dollars but with an FX rate moving under inflation registered lower revenues when measured in constant pesos. As for advertising, revenues in nominal terms increased by approximately 63% across all our business segments, lower than the inter-annualization rate of 83%, thus resulting in lower revenues in real terms. Cost of sales decreased by 15.7% to ARS 4.7 billion. The decrease was mainly caused by lower salaries and severance payments, lower car race events costs related to the unconsolidation of Auto Sports and lower fees for services. Selling and administrative expenses decreased 18.8% to ARS 1.5 billion in constant pesos mainly as a result of lower salaries and severance payments and contingencies. As a result, during this period, adjusted EBITDA decreased 13.8% to ARS 2.2 billion and the margin stood at 25.9%, higher than the second quarter '22 figure of 22.9% and the third quarter '21 figure of 25.3%. Prime time for Channel 13 audience share increased 24.6% and total time share increased by 11.6%. 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 35.7% 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 6.7% in real terms to ARS 6.8 billion in third quarter '22 mainly as a result of lower advertising revenues in real terms and lower printing and other revenues. While circulation revenues in real term stood at similar levels than figures for third quarter '21 even in the high inflation environment, thanks to higher optional product sales and higher book sales from our bookstore chain [indiscernible] as commercial activity normalized after the pandemic and higher paywall revenues, partially offset by lower traditional circulation revenues. During third quarter '22, advertising revenues in nominal pesos increased by 63%, while interannual inflation as of September '22 was 83%, resulting in an 8% decrease when measured in constant pesos. 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 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 167,700 average daily copies, with a decrease in share while paying paywall subs reached 429,500 as of third quarter '22, 55.2% higher than third quarter '21. Cost of sales decreased by 7.4% to ARS 3.5 billion in third quarter '22 compared to ARS 3.8 billion in third quarter '21, mainly related to lower consumption of raw materials related to the decrease in printed circulation and lower salaries and severance payments. Selling and administrative expenses increased by 1.6% to ARS 2.8 billion in third quarter '22, mainly due to higher marketing and advertising costs, partially offset by lower distribution costs. Regarding the other segments, turn to Slide 14. During third quarter '22, net sales in real terms decreased by 18.6% to ARS 981.8 million. EBITDA resulted in negative ARS 19.9 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 the 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 review of our ownership structure. As of today, 80% is owned by the controlling shareholders and total float is approximately 20%. Regarding the current position of our float, as shown on the slide, approximately 41% is international and 59% is local. That concludes our comments. We will now take your questions. Chad, we are ready for questions, please.

[Operator Instructions] It appears that we have no questions at this time. So I would like to turn the program back over to Samantha Olivieri for any closing remarks.

Thank you, Chad. I want to thank everyone for your attendance today. We appreciate your interest in our company. Please do not hesitate to contact us if you have any questions in the future. I look forward to speaking with you about the full year and fourth quarter 2022 results. Thank you, and have a nice day.

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