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

Good morning. My name is Marliese, and I'll be your conference operator today. [Operator Instructions] This is Grupo Clarín's Conference Call, where we will discuss results for the 9 months and third quarter 2023. 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, 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, November 10. If you have not received the report or need any assistance during today's call, please contact Fig Corporation (sic) 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. It is now my pleasure to turn the call over to Mrs. Samantha Olivieri. Please go ahead.

Thank you, Marliese. 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 third quarter of 2023 remain conditioned primarily by the effects of the severe drought in the first half of the year and the uncertainty around the presidential elections, which had an unexpected result and will be defined by ballotage on November 19. In the first 10 months of the year, the inflation index continued to rise, reaching 142.7% year-over-year in October, while the number for the year-over-year inflation of October 2022 have been 88%. As we have said in previous presentations, we believe the root of the problem lays with the Central Bank's balance sheet, which presents negative net results and higher excess of pesos in the economy. The Central Bank's reserve position is being challenged by the lingering effects of the severe drought affecting agricultural exports. The unprecedented drought as well as a stronger pressure on the demand of dollars hinders the Central Bank's ability to maintain the exchange rate parity will also affect the capacity of generating net reserves making it almost impossible to comply with the goals set by the IMF. The first day after the primary presidential elections [ passed on ], the government evaluated the Argentine peso approximately 20%, which in turn caused the parallel exchange rate to rise, further increasing the gap between them to almost 200%. The policies by the enacting government are focused not only on the stability of the exchange rate, but also on the level of GAAP to the financial exchange rate. However, the constant need of intervention to sustain step parity pushes against the rising vulnerability in the net reserves and the schedule of debt services of the sovereign debt. The Central Bank's gross reserves are at $22 billion, reaching a minimum level in the last 17 years and present a decrease of over $20 billion since the beginning of the year. While the net reserves are close to negative $11,000 million. It's important to note that the exports are the main factor altering the gross reserves and their interannual decrease of 24% to $16,000 million is the main driver of the negative net reserves. The isolated peso devaluation made after the primary elections results, along with a series of electoral-oriented policies aimed at sustaining the voters' purchasing power, although could result in a lower decrease in GDP and private consumption than expected for the year, aggravate the economic imbalances. In the sense, sorting the public accounts and relative prices must be a primary focus for the next administration. Having gone through the macro overview, please turn to Slide 6 for a quick review of some of the highlights for 2023. We continue to consolidate our online content proposal. Thanks to corporate alliances, we have reached more than 690,000 total subs and 581,200 paying digital subs in Clarin.com by the end of September 23, 35% higher than September '22. Digital advertising is still showing growth in real terms. The inflation dynamic continues to pose a challenge for traditional advertising and programming. Please turn to Slide 7 for a brief analysis of Grupo Clarín's financial performance for the first 9 months 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 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 2023 include the effects of the adoption of inflationary accounting in accordance with International Accounting Standards 29. For comparative purposes, the results were stated by inflation corresponding to September 2022, contain the effect of year-over-year inflation as of September 2023, which amounted to 138.3%. In this presentation, we included some figures in historical values for the sake of clarity. Revenues for the first 9 months of 2023 increased by 110% to ARS 78.5 billion in nominal pesos. Considering IAS adjustment, revenues decreased slightly by 2.3% from ARS 112.3 billion to ARS 109.6 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 8.5 billion from ARS 5.6 billion and ARS 11.8 billion from ARS 16.8 billion in real terms. Revenues for Broadcasting and Programming and for Digital and Printed Publications represented 44% and 49% 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 a loss of ARS 1,377.2 million from the 2022 figure of negative ARS 1,181.9 million. The increase in negative net income was mainly the result of lower EBITDA in real terms, partially offset by lower income tax, higher income from unconsolidated affiliates, positive other income and expenses net versus a negative figure in 2022 and lower negative net financial results. The variation of the negative financial results is explained by higher positive interest, lower net foreign exchange results and lower negative results from operations with notes and bonds, partially offset by higher interest on debt and a higher negative inflation adjustment. The higher income from unconsolidated affiliates is mainly the result of the suspension of operations in BIMO, which had, had negative results the year before, partially offset by lower positive results in our subsidiary Papel Prensa, and higher negative results in our subsidiary Tele Red Imagen S.A. Moving on to Slide 8. Revenues for the third quarter '23 increased by 114.8% to ARS 31.7 billion in nominal pesos and EBITDA increased by 8% to ARS 2,619.7 million in nominal pesos. If we consider inflation adjustment, revenues decreased by 6%, while EBITDA decreased by 60.1%, mainly due to lower EBITDA in Broadcasting and Programming and higher printing costs in the Digital and Printed Publications segment. Net income for the period attributable to equity shareholders in real pesos was negative ARS 2,720 million. The decrease in net income was mainly attributable to lower EBITDA in real terms and higher negative financial results, partially offset by a positive income tax charge in 2023 versus a negative charge in the year before, and positive income from unconsolidated affiliates versus a negative figure in 2022, which have been largely explained by the negative charges of BIMO when operations were suspended. Slide 9, please. This graph show revenues decreased by 6% in real terms, while total costs increased by 4.9%, resulting in an EBITDA margin contraction in third quarter '23 compared to third quarter '22, which was 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 higher printing and raw material costs in Digital and Printed Publications. In the next slide, we review the revenue breakdown and performance. Our main sources of revenue are advertising, circulation and 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 and historical figures increased alongside inflation, which had averaged approximately 68% year-over-year, but inflation accelerated from July '22 resulting in lower advertising revenues in real terms during the second half of last year, 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 Digital and Printed Publications increased 6% in real terms in the third quarter driven by digital advertising and electoral advertising. 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 and corporate subs translated and 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 signals 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. 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 September 2023 increased 9% to ARS 7.1 billion due to higher bank overdrafts, partially offset by lower U.S. dollar-denominated financial debt. During third quarter '23, we made a capital contribution of $950,000 to our subsidiary IESA with which it canceled its debt. Approximately 60.4% of our total debt, that is $10.6 million and 43.3% of cash and cash equivalents or $20.5 million are in U.S. dollar-denominated accounts. 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 15.7% to ARS 16.7 billion in constant pesos in third quarter '23 compared to ARS 19.9 billion in third quarter '22. This was mainly due to 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. Cost of sales decreased by 8.2% to ARS 10.2 billion. The decrease was mainly caused by lower content production costs with less expensive shows on air and no third-party production costs during this quarter, partially offset by higher salaries. Selling and administrative expenses increased 7.4% to ARS 3,857.5 million in constant pesos mainly as a result of higher contingencies. As a result, during this period, adjusted EBITDA decreased 47.8% to ARS 2.7 billion, and the margin stood at 16.1%, lower than the third quarter '22 figure of 25.9%. Prime time for Channel 13 audience share decreased 14.9% and total time audience share decreased by 12.5%, but with an improvement from 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 32.1% of advertising market share. Now let's move on to the Digital and Printed Publications segment on the next slide. Total revenues increased by 6% in real terms to ARS 17.2 billion in third quarter '23, mainly as a result of higher printing revenues related to electoral ballots, higher advertising revenues driven by digital advertising and political advertising in electoral times, higher optional products 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 revenue and paywall revenues are gaining share as a percentage of newspaper circulation revenues. Traditional paper copy circulation showed a decrease from the levels for the same period of 2022 to 52,600 average daily copies with a decrease in share while paying paywall subs reached 581,200 as of third quarter '23, 35.3% higher than third quarter '22, driven mainly by corporate subs. Cost of sales increased by 26.1% to ARS 10.6 billion in third quarter '23 compared to ARS 8.4 billion in third quarter '22, mainly related to higher costs related to the increase in Printing and Circulation revenues and the effect of inflation adjustment on cost of optional products purchased in advance. Selling and administrative expenses decreased by 5.4% to ARS 6.2 billion in third quarter '23, mainly due to lower distribution costs and marketing and advertising expenses. Regarding other segments, turn to Slide 15. During third quarter '23, net sales in real terms decreased by 3.9% to ARS 2,247.9 million. EBITDA resulted in negative ARS 489.6 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 third-party revenues and its total revenues, generating new sources of income. This segment also includes corporate costs. 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 controlling shareholders and total float is approximately 20%. Regarding the current composition of our float, as shown on the slide, approximately 32% is international and 68% local. That concludes our comments for today. We will now take your questions. Marliese, 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 some closing remarks.

Thank you, Marliese. Thank you all for your attendance to this webcast presentation. We appreciate your interest in our company. Please do not hesitate to contact our IR team if you have any questions. I look forward to speaking with you about the fourth quarter '23 and full year results. Have a good day.

And the conference has now concluded. Thank you so much for attending today's presentation. You may now disconnect.