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 2023. My name is Gary, 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. Mr. 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, May 12. 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 the webcast presentation that can be found at ir.grupoclarín.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 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 this event 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. Let's move on to Slide 4. [Audio Gap] previous year with the acceleration of the inflation rate and the gap between the official and financial exchange rates continuing to increase, now close to 100%. In the first 3 months of the year, the inflation index surpassed the 3-digit mark, reaching 104.3% year-over-year as of March and 108.8% as of April while the number for the year-over-year inflation as of March 2022 was [ 55% ]. This acceleration, the distortion of relative prices and the gap in the official and financial exchange rates are symptoms of the economic imbalance, while the root of the problem lays with the worsening of the Central Bank financials, which presents almost no net reserves. The Central Bank's reserve position is being challenged by the effects of the severe drought affecting the agricultural exports. The unprecedented drought, along with the difficulties to continue increasing imports commercial debt, has delayed import payments currently amount to $12.6 billion, and the farmer's reluctancy to sell their production as a consequence of the delicate economic context affected the Central Bank capacity of generating net reserves and managed to get it into the negative terrain, further hindering the compliance of the goals set by the International Monetary Fund. Regarding the extended fund facility agreement with the IMF, there is a revision ongoing with the objective of potentially advancing the disbursement we made during the second half of 2023 into the first half of the year of $10.7 billion to temporarily ease the pressures on the net reserves, which would help reduce the financial accident before the primary elections. However, as long as the trade surplus remains small or even in negative terrain, the transition into a next administration after October's election will prove challenging. Finally, projections for 2023 are being revised downwards, a noticeable deceleration of activity to negative values around 4% instead of projections showed at the start of the year, and an inflationary regime close to 130% for the entire year. Having gone through the macro overview, please turn to Slide 6 for a quick review of some of the highlights for the first quarter. The Digital and Printed Publications had a strong quarter as a result of higher revenues linked to school textbooks purchased by the national government. We continue to consolidate our online content proposal reaching approximately 600,000 total subs and 479,100 paying digital subs in clarin.com by the end of March [ '21 ], 31% higher than March '22. Advertising and programming sales underperformed when compared to interannual inflation, especially from third quarter 2022 when inflation pace picked up. However, it is worth noting that advertising revenues in the Digital and Printed Publication segment stood at the same level in real terms as first quarter '22, driven by digital advertising. [indiscernible] maintain a solid cash position with low leverage, and approximately 33% of our cash and cash equivalents is in U.S.-denominated accounts. Please turn to Slide 7 for a brief analysis of Grupo Clarín's financial performance for the [Audio Gap] of the inflation adjustment adopted by Resolution 777/18 of the Argentine Securities Commission, 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 first quarter 2023 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 2022, [Audio Gap] 104.3%. In this presentation, we included some figures and historical values for the sake of clarity. [Technical Difficulty]

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I'll pick up where I left. Accordingly, the reported figures corresponding for the first quarter '23 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 2022 contain the effect of year-over-year inflation as of March 2023, which amounted to 104.3%. In this presentation, we included some figures in historical values for the sake of clarity. Revenues for the first quarter of 2023 increased by 113.8%, ARS 21.2 billion in nominal pesos. Considering IAS adjustment, revenues increased by 5.9% from ARS 21.5 billion to ARS 22.8 billion in real pesos, mainly due to higher circulation and printing revenues in Digital and Printed Publications, partially offset by lower advertising, programming and other revenues in the Broadcasting and Programming segment. EBITDA in nominal terms reached ARS 3 billion from ARS 1.3 billion and ARS 3.2 billion from ARS 2.9 billion in real terms. Revenues for Broadcasting and Programming and for Digital and Printed Publications represented 38% and 54% 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 1,060.2 million from [Audio Gap], the result of lower negative net financial results, higher EBITDA in real terms and higher income from unconsolidated affiliates partially offset by a higher income tax. The variation of the negative financial results is explained by lower negative results from operations with notes and bonds, higher positive interest and positive net foreign exchange results partially offset by higher interest on debt and a higher negative inflation adjustment. The higher income from unconsolidated affiliates is mainly the result of positive net income in TRISA versus negative results in 2022, which had been affected by high seasonal cost mainly from rights to the transmission of the elimination matches of the FIFA World Cup, the discontinuation of BIMO operations, which had negative results in 2022 and higher net income in our subsidiary, Papel Prensa, which was mainly due to higher gross margin related to an increase of volumes of paper sold with a higher domestic demand. Slide 8, please. As the graphs show, revenues increased [Audio Gap] margin expansion in the first quarter compared to first quarter '22, mainly attributable to higher EBITDA generated by sales related to the national government's tender offer [Audio Gap], distribution costs partially offset by lower EBITDA in the Broadcasting and Programming, driven by lower advertising and program revenues in real terms, [Audio Gap] revenue breakdown and performance. Our main sources of revenue are advertising, circulation paywall 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 2022, advertising sales in historical figures increased alongside inflation, which was average 60% year-over-year, but inflation accelerated from July '22, resulting in lower advertising revenues in real term during the second half of 2022, a trend that continued into 2023, although the gap was slightly smaller in the first quarter. Nonetheless, it is worth mentioning that advertising revenues in the Digital and Printed Publication segment stood at the same level as the first quarter '22, driven by digital advertising. Circulation and paywall revenues include traditional newspaper and magazine sales, optional products and book sales and digital subscription paywall, among other. The shift in readers' behavior translated in paying digital subs increasing steadily during the past year. In addition, higher school book sales translated into 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, which are seasonal. While the latter item returned during 2022, the revenues for TV signals are tied to the number of subscribers of pay TV operators and their ability to increase the price of their service, and price increases as per local regulations must be communicated in advance. During 2022, pay TV average prices increased below inflation, negatively affecting year-over-year revenue in real terms. In addition, international signal revenues are in U.S. dollars, but with an FX rate moving under inflation, registered lower revenues when measured in constant pesos. During this quarter, our subsidiary Pol-Ka had revenues for the production of the season 2 of [ La Protectores ], aired by Star Plus. 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 March 2023 increased 6.7% to ARS 3.8 billion due to higher bank overdraft partially offset by lower U.S. dollar-denominated debt and exchange rate moving below CPI index year-over-year. Approximately 62.6% of our total debt, that is $11.5 million, and 33% of our cash and cash equivalents or $17.3 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 the Broadcasting and Programming division on Slide 12. Revenues decreased by 8.8% to ARS 9.1 billion in constant pesos in first quarter '23 compared to ARS 10 billion in first quarter '22. This was mainly due to lower advertising revenues with lower share and lower programming revenues at ARTEAR. Cost of sales decreased by 5.6% to ARS 6.2 billion. The decrease was mainly caused by lower salaries and severance payments and other operating costs. Selling and administrative expenses decreased 4.4% to ARS 2,134.7 million in constant pesos, mainly as a result of lower fees for services and salaries and severance payments partially offset by higher contingencies. As a result, during this period, adjusted EBITDA decreased [Audio Gap], [ 8.1% ] lower than the first quarter figure of 11.5% in 2022. Prime time for Channel 13 audience share decreased 27.7% and total time audience share decreased by 18.6%. This was a result of a better performance of our main competitor, Telefe Viacom, with a Big Brother reality show. Nonetheless, our audience performance has allowed us to reach 29.7% for advertising market share. Now let's move on to the Digital and Printed Publications segment on the next slide. Total revenue increased [Audio Gap] quarter '23, mainly as a result of higher circulation and printing revenues related to the national government's tender offer to acquire school textbooks from different editors, including books from our school textbook brand, Tinta Fresca, and other editors, with higher printing services from our subsidiary, Oportunidades. The amount of books acquired [Audio Gap], and thanks to our ability to adapt the content of our titles to the new requirements for the year in record time and print in a context of low paper supply, we increased our share from 11.9% to 14.3%. It is also worth mentioning that even given the tough macro scenario, advertising revenues for this segment stood at the same levels as first quarter '22 in real terms driven by digital advertising. This segment has been transformed radically as traditional paper gives way to new digital performance. Digital and advertising has gained share as a percentage of total 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 2022 to [ 152,000 ] average digital copies with a decrease in shares, while paying paywall subs reached [ 479,100 ] as the first quarter '23, 30.8% higher than first quarter '22. Cost of sales increased by 15.8% to ARS 6.7 billion in first quarter '23 compared to ARS 5.8 billion in first quarter '22, mainly related to cost of sales related to school textbooks partially offset by lower salaries. Selling and administrative expenses increased by 11.1% to ARS 4.1 billion in the first quarter '23, mainly due to higher distribution costs [Audio Gap]. Regarding other segments, turn to Slide 14. During first quarter '23, net sales in real terms decreased by 1.4% to ARS 1,811.1 million, and EBITDA resulted in ARS 477.3 million. Gestión Compartida is a shared services company and derives 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. [Audio Gap] 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, shown on the slide, approximately 34% is international and 66% is local. That concludes our comments. We will now take your questions. Gary, we are ready for questions, please.

[Operator Instructions]

So we have 1 question from [ Juan Miceli ]. I would like to know if you have an estimated EBITDA for the year 2023, please.

Juan, thank you for your question. Estimating an EBITDA figure with this year's increasing inflation rate is really hard, so we really don't have a figure for that this time. In this tough economic context, we expect that we will be able to navigate it and turn in results, but a figure is hard to give.

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

Thank you, Gary. I want to thank you all for your attendance today. We appreciate your interest in our 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 the second quarter '23 results. Have a great day.

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