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

Good morning. My name is Rocco, and I'll be your conference operator today. [Operator Instructions] This is Grupo Clarín's conference call where we will discuss results for the first quarter 2024 results. 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 the Fig Corporate communications following the call. I will now introduce our speaker, Mr. Samantha Olivieri, Head of Investor Relations, and we also have 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 Monday, May 13. 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 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 Ms. Samantha Olivieri. Please go ahead.

Thank you, Rocco. Good morning, everyone. Let me quickly outline the agenda for today's call. We will start with a brief macro overview, followed by a 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 mentioned in the previous call, in its first few days in office, the new administration proposed an economical program of controlled stock. It's declared objective to simultaneously attack several fronts amongst them, the fiscal deficit, the correction of relative prices, mainly official exchange rate and utilities tariffs and the Central Bank's balance sheet by both recomposing the international reserves and diluting the remunerated liabilities of the monetary authority. With a little about more -- with about a little more of 5 months into the current administration, results are better than expected. However, the process of correcting the multiple imbalances inherited by the government is costly in terms of activity level and employment, although for the time being, not on the government's popularity. The jump in inflation derived from correcting the distortion of most of the relative prices crumbled the purchasing power of salaries and income. Several critical sectors of the economy, such as industry, auto and construction registered average drops of around 20% to 25% in the first quarter of the year, while key consumption indicators such as retail sales, supermarkets and shopping centers also registered similar falls. Under this delicate context of GDP regression that we estimate in around 5% vis-a-vis the same quarter of 2023, advertising revenues sensitive to the economic cycle, experienced an interannual decrease of around 40%. Going forward, expectations are placed on whether the inflation will continue its deceleration trend and a recovery of salaries, purchasing power and therefore, of consumption and activity will occur during the second half of the year. The degree of social tolerance to the unprecedented adjustment underway proposed by this administration still represents a question mark and thus the governability going forward. Having gone through the macro overview, please turn to Slide 6 for a brief analysis of Grupo Clarín's financial performance for the first quarter of 2024. The company has reflected the effects of inflation adjustment adopted by Resolution 777/18 of the Argentine Securities Commission, CMV 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 2024 include the effects of the adoption of inflationary accounting in accordance with the International Accounting Standard 29. For comparative purposes, the results restated by inflation corresponding to March 2023 contain the effect of year-over-year inflation as of March 2024, which amounted to 287.9%. In this presentation, we included some figures in historical values for the sake of clarity. Revenues for the first quarter 2024 increased by 111.1% to ARS 44.8 billion. Considering IAS adjustment, revenues decreased by 43.5% from ARS 88.3 billion to ARS 49.9 billion, mainly due to lower circulation revenues in digital and printed publications and lower advertising and programming revenues. Advertising revenues are the main source of revenue of the Broadcasting and Programming segment representing approximately 70% on a yearly basis. EBITDA in nominal terms reached ARS 0.5 billion from ARS 3 billion and ARS 0.6 billion from ARS 12.4 billion in real terms. Revenues for Broadcasting and Programming and for digital and printed publications represented 42% and 49% of total revenues, respectively, while revenues for the Other segment represented 9%. Net income for the period attributable to equity shareholders in real pesos amounted to a loss of ARS 7.3 billion from the 2023 figure of ARS 4.1 billion positive net income. The decrease in net income was mainly the result of lower EBITDA in real terms, lower income from unconsolidated affiliates and higher income tax partially offset by a positive inflation adjustment in 2024 versus the negative figure in 2023. Slide 7, please. As the graphs show, revenues decreased 43.5% in real terms, while costs decreased by 35%, resulting in a decrease in EBITDA margin in the first quarter of 2024. The decrease in EBITDA is mainly attributable to digital and printed publications segment that in first quarter '23 had the positive effect of revenues from school textbooks from government bidding, which given the change in administration did not materialize in 2024 and lower advertising revenues in real terms, which could not be fully offset by lower costs. Next slide, please. On Slide 8, 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. The challenging macro scenario during the first quarter of 2024 with the drastic fall of economic activity and the acceleration of inflation and side effects of the policies implemented by the new administration to correct the inherited economic imbalances and the change in the national government's policy with respect to official advertising resulted in advertising revenues decreasing 41.1% in real terms in the first quarter. Circulation and paywall revenues include traditional newspaper and magazine sales, optional products and book sales and digital subscription paywall among others. The shift in readers behavior and corporate subs translated in paying digital subs increasing steadily since the paywall was launched. The pricing policy for traditional circulation has been to increase newspaper prices along inflation, while copies sold have decreased 27% year-over-year in the first quarter of '24. In addition, first quarter 2023 includes revenues from higher school book sales from government bidding, which given the change in administration, as we've mentioned, did not materialize in 2024 and explain most of the decrease in circulation revenues in this quarter. Programming sales include the sale of our TV segments to cable TV operators, OTT platforms and content production for third parties, which are cyclical. 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. During 2023 and first quarter 2024, pay TV average prices increased below inflation, negatively affecting year-over-year revenue in real terms. Please move to Slide 9, where we discuss the breakdown of costs and expenses. Our main costs are salary, social security and benefits to personnel printing and other editorial costs, including paper and other raw materials, programming coproduction and other costs related to production aired by our subsidiary, Artear. Fees for services and distribution costs of editorial products. Other cost components, except for bad debt, increased below inflation during the first quarter of 2024 therefore, decreasing in real terms, reflecting cost management efforts to tackle the complex macroeconomic scenario and lower variable costs related to the decrease in revenue. 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 2024 increased 42.7% to ARS 21.3 billion, mainly as a result of debt incurred to subscribe real bonds to cancel foreign currency commercial debt and higher dollar-denominated debt, approximately 53.1% of our total debt or $13.2 million and 67.1% of cash and cash equivalents or $29.4 million are in U.S. dollars. Overall, we continue to show a manageable debt profile with no leverage. Moving on to the segment breakdown. We begin with the Broadcasting and Programming division on Slide 12. Revenues decreased by 37.7% to ARS 22 billion in constant pesos in first quarter 2014 compared to ARS 35.3 billion in first quarter '23. This was mainly due to the lower advertising revenues and lower programming revenues, as explained when we discuss revenue breakdown. Cost of sales decreased by 34% to ARS 16 billion. The decrease was mainly the result of cost management efforts with lower cost of the air programming and lower salaries and severance payments in real terms. Selling and administrative expenses decreased 28% to ARS 5,965 million in constant, mainly as a result of lower fees for services, lower contingencies and lower salaries and severance payments. As a result, during this period, adjusted EBITDA decreased 97% to ARS 0.1 billion, and the margin stood at 0.4% from the first quarter '23 figure of 8.1%. Prime time for Channel 13 audience share increased 12.2% and total time audience share increased by 9.2% year-over-year. Our audience performance has allowed us to reach 29.5% of advertising market share. Now let's move on to the digital and printed publication segment on the next slide. Total revenues decreased by 48.7% in real terms to ARS 25.5 billion in first quarter 2014, mainly as a result of circulation and printing revenues related to the bidding for school textbooks of first quarter '23 which did not materialize in 2024, lower traditional circulation revenues and lower advertising revenues in a context of falling activity, high inflation and a drop in official advertising. This segment has been transformed radically as traditional paper gives way to new digital forms. 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 2023 to 44,500 average daily copies, while paying paywall subs reached 69,400 as of the first quarter '24, 27.2% higher than first quarter '23 driven by corporate subs. Cost of sales decreased by 41.9% to ARS 15.1 million in first quarter '21 compared to $25.9 million in first quarter '23. Mainly due to lower costs related to the decrease in textbook sales and lower printed circulation and lower salaries and severance payments. Selling and administrative expenses decreased by 36.4% to ARS 10.2 billion in the first quarter '23. Mainly due to lower distribution costs related to lower school textbooks and traditional circulation revenues, lower salaries and severance payments and lower fees for service. Regarding the Other segment turn to Slide 14. During first quarter 2014, net sales in real terms decreased by 36.8% to ARS 4,437.2 million and EBITDA resulted in ARS 285.4 million. Gestión Compartida is a shared services company and derivative revenues from administrative and corporate services rented to Grupo Clarín's 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 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 composition of our float, as shown on the slide, approximately 31% is represented by GDSs, and 69% is local float. That concludes our comments. We will now take your questions. Operator, we are ready for questions.

[Operator Instructions].

Rocco, I'm getting a couple of questions here. So I will go ahead and read them from [ Frederico Martin ] from Research. First question, could you please give some color of the share over total revenues for the government propaganda in the last year and the current one. Thank you, Frederico, for your question. Last year, for the whole year there may have been differences between quarters, but official ad spend was approximately 30% of advertising revenues. And this year, we are close to 20%, I think around 18 or something percent.

We have a second question from Julia [indiscernible] Yes. Historically, what percentage of revenues did official advertising represent overall and per segment, if possible?

Thank you, Julia. Well, I gave the figures just now. The figures are approximately the same over all of the segments. Historically, on election years, official advertising usually is a higher percentage as was in 2023 when we were close to 30% and regular years are closer to 20%.

[Operator Instructions].

There is another question from [ Frederico Martin ] asks that the color about the increase in accounts receivables during this period. I'm sorry Frederico -- in fact, they decreased, but we are comparing inflation adjustment numbers. So there is the effect of inflation adjustment of figures from last year. Maybe if you can -- I'm not sure if you're looking at December to March figures or if you're looking March versus March. If so, the March 2023 figures that we published last year had to be adjusted by inflation year-over-year with 287.9%. So in fact, they would probably be a decrease as happens from December to March.

And at this time, I'm showing no further questions. I'd like to turn the conference back over to Samantha Olivieri for closing remarks.

Thank you, Rocco. Thank you all for your questions today and your interest in our company. We look forward to seeing you for the second quarter 2014 results.

Thank you. Today's conference has now concluded, and we thank you all for attending today's presentation. You may now disconnect your lines, and have a wonderful day.