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

Good morning, and welcome to the Grupo Clarin's conference call, where we will discuss results for the full year and last quarter 2022. My name is Dave, 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 speakers. Mrs. 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, 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 54-114-309-7104. Grupo Clarin has also posted the webcast presentation that can be found at ir.grupoclarin.com under the Financial Information section. 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 Eastern Europe conflict, new or ongoing industry and economic regulations, possible changes in demand for Grupo Clarin's products and services and the effects are 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, Dave. 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. Argentina's economic performance during 2022 was once again constrained by a significant uncertainty generated by the fiscal imbalance, growing indebtedness of the public sector, weak reserves and acceleration of inflation rate and the gap between the official and the financial exchange rates. This uncertainty was worsened by the Russian invasion of Ukraine at the end of February. The disruptions in the supply chain had a strong impact on international prices, mainly in the food and energy industries, which resulted in a noticeable increase in the inflation rate globally. When we analyze 2022 at a local level, there are 2 main things to consider. The extended fund facility agreement with the International Monetary Fund, IMF, for 30 months and $44 billion and the significant decline in the trade surplus position in the external front. Although the objectives agreed upon with the IMF lower fiscal deficit at a primary level, lower direct assistance to the treasury by the Central Bank and the accumulation of net reserves were accomplished, the higher inflation at the global level triggered doubts about the ability to comply with the program, which also revealed itself as very sensitive to external shocks. This accelerated the loss of reserves, which difficult reaching the goals set by the agreement and generated a disruption in the treasury access to financial pesos. In addition, a double succession of authorities in the economic cabinet in July with Silvina Batakis taking the place of Martín Guzmán and later being replaced by Sergio Massa, who until then had been the President of the Chamber of Deputies, meant a turn towards more restrictive policies. In 2022, the inflation index rose to close to 3 digits, to which there was no similar record since 1991, twice the 2021's index. This acceleration took place with no correlation to the official exchange rate parity and with lag relative prices, such as utility tariffs, monetary base and wages and pensions adjusting below the price index. Despite the prices acceleration, the GDP closed the year with an increase of around 5.5% to 6%, recording 2 years of recovery. This register impacted by a significant statistical drag clearly exhibit symptoms of deceleration in the last months of the year. The printing of pesos turned out to be significant despite the category for the Treasury's monetary financing. The monetary authority emitted an interest for its remunerated liabilities, direct and indirect financing of the treasury and purchase of foreign currency from the private sector, some close to ARS 8,000 million. the sterilization of such a high number of pesos for which demand is continuously declining, prompted the stock of remunerated liabilities of the Central Bank, mainly [indiscernible] to end the year close to ARS 10 billion, approximately 12% of the GDP, which represents more than twice the monetary base, more than double the figure of the end of 2021 and exceeds by 8.5x the amount at the beginning of the presidential mandate at the end of 2019. Finally, the external front presented a significant decline in its surplus position despite registering the best terms of trade in Argentina's history. It is worth mentioning that the good commercial surplus would end the year close to $7,000 million, which is 53% below the $15,000 million of 2021. This compression is explained in part by a significant leap of energy imports, 120% more than 2021, and paradoxically takes place even with a new record that the goods exports are expected to reach, close to $89,000 million, 13% higher than 2021. Argentina enters 2023 with no tailwind. Brazil is expected to decelerate while given the weak estimates for the harvest, China's expected growth won't be taken advantage of. The unprecedented drought [indiscernible] the economy and tends to enhance the macro imbalances in turn questioning the strict adherence to the goal set with the IMF and increases the size of a negative inheritance that the coming government will face. The troubling beginning of the year must be added to political and economic uncertainties of our year in which presidential elections will take place. Private projections for 2023 are, again, less optimistic beneficial projections and are currently being revised downwards. A noticeable deceleration of the activity to null or even negative in the worst-case scenarios is expected and an inflationary dynamic similar to the one registered in 2022 or higher, fueled in part by ongoing adjustments to certain relative prices such as utility and transfer tariffs is expected. In this complex setting, the continuity of current policies seems guided fundamentally to the compliance of the goals with the IMF and managing the economic imbalances. Among them, the new 3-digit inflationary regime that has surpassed 100% year-over-year measurement as of February. Having gone through the macro overview, please turn to Slide 6 for a quick review of some of the highlights for 2022. Despite the challenging macro scenario described before and the acceleration in the inflation rate, we had a strong performance in circulation revenues. We continue to consolidate our online content proposal, reaching approximately 550,000 total subs and 427,600 paying digital subs in clarin.com by the end of December 22, 19% higher than December '21. Advertising and programming sales underperformed when compared to interannual inflation, especially from third quarter 2022 when inflation pace picked up. We maintain our commitment with quality content. Our journalistic products received numerous awards during this year. We maintain a solid cash position with low leverage and approximately 43% of our cash and cash equivalents are in U.S. dollars and foreign accounts. After 2 challenging years marked by an unprecedented global health crisis brought by the COVID-19 pandemic, our operations have returned to normal, content production, international news coverage and commercial activity have normalized. Please turn to Slide 7 for a brief analysis of Grupo Clarin's financial performance for the full year of 2022. The company has reflected the effects of inflation adjustment adopted by Resolution 777/18 of the Comision 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 full year and last 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 according to -- corresponding to December 2021 contain the effect of year-over-year inflation as of December 2022, which amounted to 94.8%. In this presentation, we included some figures in historical values for the sake of clarity. Revenues for the full year of 2022 increased by 62.2% to ARS 54.9 billion in nominal pesos. Considering IAS adjustment, revenues decreased by 5.9% from ARS 78.2 billion to 73.6 billion in real pesos, mainly due to lower advertising, programming and other revenues in Broadcasting and Programming segment, partially offset by higher circulation revenues in digital and printed publications. EBITDA in nominal terms reached ARS 7.3 billion from ARS 5.3 billion and ARS 9.8 billion from ARS 12.2 billion in real terms. Revenues for Broadcasting and Programming and for digital and printed publications represented 50% and 43% of total revenues, respectively, while revenues from the other segment represented 7%. Net income for the period attributable to equity shareholders in real pesos amounted to a loss of ARS 1,372.2 million from the 2021 figure of ARS 2,024 million positive figure. The decrease was mainly the result of lower EBITDA in real terms, higher negative net financial results and lower income from unconsolidated affiliates, partially offset by a higher income tax and lower depreciation and amortization. The variation of 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 [ Trisa ] affected by lower programming revenue in real terms and higher costs mainly from the right to transmission of the FIFA World Cup matches. Negative results in BIMO after operations were suspended and partially offset by higher net income in our subsidiary, Papel Prensa, which was mainly due to higher gross margin related to an increase of volumes of papers sold with higher domestic demand. Moving on to Slide 8. Revenues for the fourth quarter '22 increased by 67.2% to 17.5 billion in nominal pesos and EBITDA increased by 51% to 1,732.1 million in nominal pesos. If we consider inflation adjustment, revenues decreased by 14.2%, while EBITDA decreased by 27.4%, mainly due to lower EBITDA in broadcasting and programming and in digital and printed publications. Net income for the period attributable to equity shareholders in real pesos was negative $690.4 million. The decrease was mainly attributable to lower EBITDA and higher negative net financial results explained by inflation adjustment results under IAS 29, partially offset by lower income tax and higher earnings from unconsolidated subs. As the graph shows, revenues decreased 14.2% in real terms, while costs decreased by 12.7%, resulting in an EBITDA margin contraction in fourth quarter compared to fourth quarter '21, mainly attributable to lower revenues in real terms. Sorry, Slide 9, please. Mainly attributable to lower revenues in real terms, driven by lower advertising across all segments, which reached 14.9%. Lower programming revenues in broadcasting and programming, which decreased 12.6%, lower printing revenues and then consolidation of the car race operations with the sale of Auto Sports, partially offset by lower costs, which were mainly lower programming costs, lower cost of raw materials related to lower traditional circulation sales, lower advertising and promotion expenses, lower distribution costs and lower costs following the unconsolidation of the car race business. In the next slide, we review the breakdown and performance for the year. Our main sources of revenues are advertising, circulation and payroll and programming. Advertising is typically tied to the performance of Argentina's economy. Advertisers ad spend budget is normally approved at the beginning of the year. During the first half of the year 2022, advertising sales and historical figures increased alongside inflation, which averaged approximately 60% year-over-year. That inflation accelerated from July '22, resulting in lower advertising revenue in real terms during the second half of 2022. Circulation and paywall revenues include traditional newspaper and magazine sales, optional products and book sales and digital subscription and paywall among others. The shift in readers behavior translated in paying digital subs increasing steadily during the first 9 months of the year. In addition, school book sales during the first quarter and the normalization of commercial activity when compared to the first half of 2021 translated in higher revenues in real terms, even with the increase of inflation rate. Programming sales include the sale of our TV signals to cable TV operators, OTT platforms and content production for third parties. While the latter item returned during 2022, the revenues for TV signals are tied to the number of subscribers of the pay TV operators and their ability to increase the price for their service and price increases as per local regulations must be communicated and advanced. During 2022, pay-TV average prices increased below inflation, negatively affecting revenue in real terms. In addition, International signal revenues are in U.S. dollars, but with the FX rate moving under inflation, registered lower revenues when measured in constant basis. We will discuss the breakdown by segment shortly, but first, let's review the debt financial position as per Slide 11. The total debt as of December 2022 increased 8.8% to ARS 2.5 billion due to lower financial loans -- I mean, sorry, lower financial loans, partially offset by higher bank overdraft, approximately 6% -- 60% of our total debt, that is $11.7 million and 43% of our cash and cash equivalents, that is $18.8 million are in U.S. dollars. 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 13. Revenues decreased by 15.8% to ARS 10 billion in constant pesos in fourth quarter '22 compared to ARS 11.9 billion in fourth quarter '21. This is mainly due to lower advertising revenues and programming revenues at ARTEAR and lower other revenues from car race events as the operation was sold and has been unconsolidated from April 2022. Cost of sales decreased by 13.7% to ARS 6 billion. The decrease was mainly caused by lower content costs since ARTEAR's screen did in their fictions during fourth quarter '22, while it had in fourth quarter '21, lower satellite cost as a result of renegotiation of contracts for service and lower car race events costs related to the unconsolidation of Auto Sports, partially offset by higher travel and other expenses related to the coverage of the FIFA World Cup and higher restructuring expenses. Selling and administrative expenses decreased 12.9% to ARS 2,228.4 million in constant pesos, mainly as a result of lower advertising and promotion expenses and lower fees for services, partially offset by higher contingencies. As a result, during this period, adjusted EBITDA decreased 24.9% to ARS 1.8 billion, and the margin stood at 18.3%, lower in the fourth quarter '21 figure of 20.6%. Prime time for Channel 13 audience share decreased 19.1% and total time audience share decreased by 18% -- 18.4%. This was the result of a better performance of our main competitor, Telefe Viacom, with Big Brother reality show. Nonetheless, our audience performance has allowed us to reach 35.2% of advertising market share with a power ratio above one, outperforming the industry. Now let's move on to digital and printed publications on the next slide. Total revenues decreased by 6.3% in real terms to $7.9 billion in fourth quarter '22, mainly as a result of lower circulation advertising revenues in real terms. As inflation accelerated in the last quarter, maintaining circulation revenue above inflation as in previous quarters was not attainable. During fourth quarter '22, advertising revenues in nominal pesos increased by 70% while interannual inflation as of December '22 was 94.8%, resulting in a 12% decrease when measured in constant pesos. This segment has been transformed radically as traditional paper gives way to new digital format. Digital advertising has gained 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 164,200 average daily copies, with a decrease in share while paying paywall subs reached 427,600 as of fourth quarter '22, 18.6% higher than fourth quarter '21. Cost of sales decreased by 5.1% to ARS 4.4 billion in fourth quarter '22 compared to ARS 4.6 billion in fourth quarter '21, mainly related to lower consumption of raw materials related to the decrease in printed circulation, partially offset by higher fees for services. Selling and administrative expenses decreased by 7.6% to ARS 3.4 billion in fourth quarter '22, mainly due to lower distribution costs related to the lower traditional circulation and marketing and advertising costs. Regarding other segments, turn to Slide 15. During fourth quarter '22, net sales in real terms decreased by 2.2% to ARS 1,263 million. EBITDA resulted in negative ARS 385.8 million. [indiscernible] as a shared services company underwrites 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 17 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 composition of our float, as shown on the slide, approximately 35% is international and 65% is local. That concludes our comments. We will now take your questions. Operator?

[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, Dave. I want to thank you all for your attendance. We appreciate your interest in the company. Please do not hesitate to contact us if you have any questions. I look forward to speaking with you about first quarter '23 results. Have a great day.

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