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 half and second quarter 2023. My name is Vaishnavi, 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're a member of the media and have questions, please contact the Corporate Communications following the call. I will now introduce our speaker, Mrs. 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 Friday, 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 +54-11-4309-7104. Grupo Clarín 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 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 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 Mr. 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 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 the second quarter of 2023 followed the trend of the previous quarter with the acceleration of the inflation rate and the gap between the official and financial exchange rates continuing to increase now over 100%, heavily conditioned by the effects of one of the worst droughts in our history and the uncertainty related to the presidential elections in the second half of the year. In the first 6 months of the year, the inflation index surpassed the 3-digit mark, reaching 115.6% year-over-year in June, while the number for the same year -- of last year was 64%. The 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 negative net reserves and a higher excess of pesos in the economy. The Central Bank's reserve position is being challenged by the effects of the severe drought affecting agricultural exports. The unprecedented drought as well as a stronger pressure on the demand of dollars hinders the ability to maintain the exchange rate parity while also affects the Central Bank's capacity of generating net reserves, further [ difficult-ing ] the compliance of the goals with the IMF. The extended fund facility agreement with the IMF is currently offtrack as a consequence of a considerable discrepancy when comparing the economic variables to the plan for 2023 and the lack of compliance of the 3 rules set by said organism. IMF staff and the government authorities have reached a staff-level agreement on the reviews underway, upon which completion, Argentina would have access to a new disbursement, which was delayed in June to help ease the effects of the drought. In the meantime, the policies by the enacting government were focused on the stability not only of the exchange rate but also of the current level of gap to the financial exchange rate. However, the constant need of intervention to sustain said parities pushed against the rising vulnerability of net reserves and the schedule of debt services of the sovereign debt. On this last subject, it is worth mentioning that the end of June maturities of $2,700 million with the IMF were deferred by 30 days. The Central Bank's gross reserves are at the minimum of the current mandate in $24,000 million as well as the lowest level since 2016 and present a decrease of close to $20,000 million since the beginning of the year while net reserves are close to negative $10,000 million. Under these constraints, the unexpected peso results create further uncertainty. And with the current dynamic, Argentina's economy would reach October in poor conditions. In an effort to ease the pressure over the reserves and secure the disbursement under the IMF agreement, on the morning after the elections, the government announced a 20% devaluation of the currency. This will likely trigger another jump in the inflation rate, which could go into the monthly double digits in the coming months. In addition, a further tightening of the monetary policy would have a negative impact on activity levels. Having gone through the macro overview, please turn to Slide 6 for a quick review of some of the highlights for 2023. The Digital and Printed Publications had a good performance in a challenging macroeconomic environment. We continue to consolidate our online content proposal. Thanks to corporate alliances, we have reached more than 650,000 total subs and 543,200 paying subs -- paying digital subs in Clarin.com by the end of June '23, 26% higher than June '22. Even with the increasing inflation, digital advertising continues to grow in real terms. Traditional advertising and programming sales underperformed when compared to interannual inflation, especially from third quarter 2022, when inflation pace picked up. Please turn to Slide 7 for a brief analysis of Grupo Clarín's financial performance for the first half of 2023. The company has reflected the effects of the inflation adjustment adopted by Resolution 777/18 of the Argentine Securities Commission, CNV, which establishes that the reexpression 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 half and second quarter 2023 include the effects of the adoption of inflationary accounting in accordance with International Accounting Standards 29. For comparative purposes, the results stated by inflation corresponding to June 2022 contain the effect of year-over-year inflation as of June 2023, which amounted to 115.6%. In this presentation, we included some figures and historical values for the sake of clarity. Revenues for the first half of 2023 increased by 106.9% to ARS 46.9 billion in nominal pesos. Considering IAS adjustment, revenues decreased slightly by 0.5% from ARS 55.6 billion to ARS 55.3 billion in real pesos, mainly due to lower programming and advertising revenues in Broadcasting and Programming segment, partially offset by higher printing and circulation revenues in Digital and Printed Publications. EBITDA in nominal terms reached ARS 5.9 billion from ARS 3.2 billion and ARS 6.9 billion from ARS 7.8 billion when measured in real terms. Revenues for Broadcasting and Programming and for Digital and Printed Publications represented 43% and 50% 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 996 million from the 2022 figure of ARS 284.6 million. This increase was mainly the result of the lower negative net financial results, positive other income and expenses net versus a negative figure in 2022 and lower income tax, partially offset by lower EBITDA in real terms and lower income from unconsolidated affiliates. The variation of the negative financial results is explained by higher positive interest, lower negative results from operations with notes and bonds and positive net foreign exchange results, partially offset by higher interest on debt and a higher negative inflation adjustment. The lower income from unconsolidated affiliates is mainly the result of lower positive results in our subsidiary, Papel Prensa, generated by negative inflation adjustment results and lower results in the Mexican joint venture, Ríos de Tinta, partially offset by the suspension of operations in BIMO, which have had negative results the year before, and by negative results in TRISA versus -- by lower negative results in TRISA versus the negative results in 2022. Moving on to Slide 8. Revenues for the second quarter '23 increased by 101.5% to ARS 25.6 billion in nominal pesos and EBITDA increased by 58% to ARS 2,870.9 million in nominal pesos. If we consider inflation adjustment, revenues decreased by 6.3% while EBITDA decreased by 28.9%, mainly due to lower EBITDA in Broadcasting and Programming and restructuring costs negatively affecting the second quarter '23 EBITDA in the Digital and Printed Publications segment. Net income for the period attributable to equity shareholders in real pesos was negative ARS 316.3 million. The decrease in net income was mainly attributable to lower EBITDA in real terms and negative income from unconsolidated affiliates versus a positive figure in 2022, which is largely explained by the results -- by lower positive results in our subsidiary, Papel Prensa, generated by negative inflation adjustment results and lower results in the Mexican joint venture, Ríos de Tinta, partially offset by income tax and positive other income and expenses net. As the graphs show -- Slide 9, please. As the graphs show, revenues decreased by 6.3% in real terms while costs decreased by 2.6%, resulting in an EBITDA margin contraction in second quarter '23 compared to 2022, which is mainly attributable to lower EBITDA in the Broadcasting and Programming segment, driven by lower programming and advertising revenues in real terms, partially offset by lower costs and by restructuring costs in Digital and Printed Publications. In the next slide, we review the revenue breakdown and performance. 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 2022, advertising sales and historical figures increased alongside inflation, which averaged approximately 60% year-over-year. But inflation accelerated from July '22, resulting in lower advertising revenues in real terms during the second half of 2022, a trend that continued into 2023, although the gap was slightly smaller, in part explained by the official ad spend in a year of elections. Traditional advertising underperformed when compared to inflation. Nonetheless, it is worth mentioning that advertising revenues in the Digital and Printed Publications increased 7% in real terms in the second quarter, driven by digital advertising. Circulation and payroll revenues include traditional newspaper and magazine sales, optional products and book sales and digital subscription and payrolls among others. 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 segments 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 segments are tied to the number of subscribers' pay TV operators and their ability to increase the price for their service. And price increases as per local regulations must be communicated in advance. During 2022 and 2023, 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. Furthermore, during second quarter '22, our subsidiary, Pol-Ka, has had revenues for a TV show for HBO, María Marta: El crimen del country, while it hasn't had third-party content productions this quarter and had revenues for a lower budget production for FOX in the first quarter of '23. We will discuss the breakdown by segment shortly. But first, let's review the debt financial position as per Slide 11. Total debt as of June 2023 increased 22.5% to ARS 6.1 billion due to higher bank overdrafts. Approximately 48.3% of our total debt and 35.5% of cash and cash equivalents, approximately $17.6 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 12.4% to ARS 13.5 billion in constant pesos in second quarter '23 compared to ARS 15.4 billion in second quarter '22. This was mainly due to lower programming revenues in Pol-Ka, explained by third-party productions during the same period of 2022 for HBO, as we mentioned, and lower content sales to pay TV service providers related to their limitation to increase their service price above inflation and lower advertising revenues at Artear. It is worth mentioning that even with the increasing interannual inflation during this quarter, advertising revenues decreased 3.6% while the interannual decrease for the first quarter had been 9.3%, driven by the performance of our news pay TV signal, TN, and by an increase in official advertising in an election year. Cost of sales decreased by 9.5% to ARS 8 billion. The decrease was mainly caused by lower content production costs with less expensive shows on air and no third-party production costs, lower salaries and severance payments and other -- and lower other operating costs. Selling and administrative expenses decreased 8% to ARS 2,764 million in constant pesos, mainly as a result of lower fees for services and salaries and severance payments. As a result, during this period, adjusted EBITDA decreased 23.6% to ARS 2.7 billion and margin stood at 19.9%, lower than the second quarter '22 figure of 22.9%. The prime time for Channel 13 audience share decreased 7.6%. And total time audience share decreased by 14.8% but with a marked improvement from the first quarter '23 figures after the reality aired by our main competitor, Telefe, Big Brother, ended while the performance of our shows improved. Our audience performance has allowed us to reach 33.5% of advertising market share. Now let's move on to the Digital and Printed Publications on the next slide. Total revenues increased by 0.1% in real terms to ARS 12.7 billion in second quarter '23, mainly as a result of higher printing revenues related to the national government's tender offer to acquire school textbooks from different editors, some of which hired printing services from our subsidiary, OSA, higher advertising revenues driven by digital advertising and lower traditional circulation revenues. This segment has been transformed radically as traditional paper gives way to new digital formats. 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 paper copy circulation showed a decrease from levels for the same period of 2022 to 55,600 average daily copies with a decrease in share, [Audio Gap] of '23 higher than the figure of second quarter '22, driven by corporate subs. Cost of sales increased by 1.5% to ARS 7.4 billion in second quarter '23 compared to ARS 7.2 billion in second quarter '22, mainly related to severance payments and costs related to the increase in printing revenues, partially offset by lower salaries. Selling and administrative expenses increased by 3% to ARS 5 billion in second quarter '23, mainly due to higher bad debt and contingencies, salaries and severance payments and fees for services, partially offset by lower distribution costs. Please turn to Slide 15. As we discussed, during this quarter, there was a restructuring of the Digital and Printed Publications segment, mainly in our subsidiary, AGEA. As a result, EBITDA figures are affected by one-time severance payment costs. As part of its digital transformation, the company continues to [ adequate ] its structure in the traditional business while acquiring new digital talent. Before considering severance payments, EBITDA for the second quarter '23 amounted to ARS 934 million from the ARS 678 million figure in second quarter '22. Margin increased to 7.4% from 5.3%. Regarding Others segment, turn to Slide 16. During second quarter, net sales in real terms decreased by 7.8% to ARS 1,835.9 million. EBITDA resulted in a negative figure of ARS 103.7 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 these 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 18 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 33% is international and 67% is local. That concludes our comments for today. And we will now take your questions. Vaishnavi, we are ready for questions, please.

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

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