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

Good morning, and welcome to the Grupo Clarín conference call. Today, the team will discuss results for the second quarter 2024 as per the earnings release distributed last Friday, August 9. My name is Danielle, and I will be your conference operator today. This call is for investors and analysts only. Therefore, questions from the media will not be taken at this time. If you are a member of the media and have questions, please contact FIG Corporate communications. Comments made by this company 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 regulatory conditions. Please refer to the disclaimer in the earnings report or presentation for additional information regarding forward-looking statements. 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 also has -- post the webcast presentation that can be found at ir.grupoclarin.com under the Financial Information section. [Operator Instructions] I would now like to introduce our speaker, Mrs. Samantha Olivieri, Head of Investor Relations. For the question-and-answer session, she will be joined by Grupo Clarín's Controller and Audit Manager; Mr. Iván Acevedo; and Mr. Marcelo Boncagni, respectively. It is now my pleasure to turn the call over to Mrs. Samantha Olivieri. Please go ahead.

Thank you, Danielle. 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. As we mentioned in previous calls, in its first months in office, the new administration implemented an economic program of controlled shop, which simultaneously attacked several fronts, including the fiscal deficit, the correction of relative prices, primarily the official exchange rate and utility tariffs, and the Central Bank's balance sheet by both recomposing international reserves and reducing the remunerated liabilities of the monetary authority. While the government is seeing results from its program and the cost in terms of economic activity and employment level is proving to be significant. There is a considerable deceleration in inflation rate, but the economic recovery and wages recomposition are progressing slower than expected. After the significant decline recorded in the first 3 months of the year, the economy seems to have found a floor in the second quarter. As a matter of fact, the monthly estimate of economic activity surveyed by the index in May, a proxy for real GDP presented a breaking point in its last measurement. After falling back 6 months in a row in year-over-year terms, the indicator registered its first increase of the year in May, 2.3%, when compared to May 2023, equivalent to 1.3% compared to the previous month. It is worth noting, however, that this result is mainly explained by the very good performance of the agriculture sector when compared to the values of the record drought of 2023. In this sense, the agricultural sector as a whole has observed average year-over-year increases of just over 60% in the last 3 months which contribute to cushioning the worrying setback that still persists in several critical sectors of the economy, such as industry, construction and commerce. Under this delicate context of GDP regression, which we estimate in around 3.5% vis-a-vis the same half of 2023, advertising revenue, 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 the recovery of salaries, purchasing power and therefore, of consumption and activity will occur during the second half of the year. Having gone through the macro overview, please turn to Slide 6 for a brief review of some of the highlights for 2024. In an extremely challenging macroeconomic environment, thanks to ongoing cost contention efforts, the seasonal effects in revenues and price increases of programming services, the Broadcasting and Programming segment showed a marked recovery from first quarter '24. EBITDA margin for this segment resulted in 21.6% from 19.9% in second quarter '23. We sold 100% of the capital stock of the regional newspaper, Diario Los Andes . In addition, as a consequence of a share buyback process, we transferred the minority interest in Killimo, a company in which AGEA had entered as part of its former incubator program. Ole, our sports news brand entered the U.S. and Mexico market, launching a digital platform with a rigor, creativity and passion that characterize it, featuring exclusive content and coverage of the MLS, NBA, Concachampions and major upcoming events, leveraging on the presence of Lionel Messi in Miami. Having gone through the highlights overview, please turn to Slide 7 for a brief analysis of Grupo Clarín's financial performance for the first half of 2024. The company has reflected the effects of 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 half and second quarter of 2024, 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 June 2024, contain the effect of year-over-year inflation as of June 2024, which amounted to 271.5%. In this presentation, we included some figures in historical value for the sake of clarity. Revenues for the first half of 2024 increased by 137.5% to ARS 111.3 billion in nominal pesos. Considering IAS adjustment, revenues decreased by 37.5% from ARS 205.5 billion to ARS 128.5 billion in real pesos, mainly due to lower circulation and printing 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 3.2 billion from ARS 5.9 billion and ARS 3.5 billion from ARS 25.7 billion in real terms. Revenues for Broadcasting and Programming and for Digital and Printed Publications represented 46% and 47% 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 10.9 billion from the 2023 positive figure of ARS 3.7 billion. The decrease in net income was mainly the result of lower EBITDA in real terms, negative net income from unconsolidated affiliates from a positive figure in 2023, mainly explained by higher negative financial results in TRISA and Canal Rural, lower net income of Papel Prensa as a result of lower paper sales and negative net income in Urbano Express, partially offset by net income in Quanix, which began operations in 2024, higher income tax and partially offset by a positive inflation adjustment in 2024 versus a negative figure in 2023, lower depreciations and amortizations and higher other income and expenses net as a result of the sale of 100% of the capital stock in Diario Los Andes and the retribution received by the subsidiary [indiscernible] from the company, Killimo, for the share buyback process during the second quarter '24. Moving on to Slide 8. Revenues for the second quarter '24 increased by 159.4% to ARS 66.4 billion in nominal pesos and EBITDA decreased 6% to ARS 2,688.1 million in nominal pesos. If we consider inflation adjustment, revenues decreased by 31.3% while EBITDA decreased by 74.4%, mainly due to lower EBITDA in Digital and Printed Publications and to a lesser extent in Broadcasting and Programming segment. Net income for the period attributable to equity shareholders in real pesos was negative ARS 2,307.8 million. The decrease in net income was mainly attributable to lower EBITDA and real terms, negative income tax, higher negative income from unconsolidated affiliates, largely explained by the negative net income in Papel Prensa, Urbano Express and Canal Rural, partially offset by lower negative net income in Exponenciar, and by the net income of the new affiliate, Quanix. And all partially offset by a positive inflation adjustment in 2024 versus a negative figure in 2023, and higher other income and expenses net due to the sale of the participation in Los Andes and Killimo. Slide 9, please. As the graphs show, revenues decreased 31.3% in real terms, while costs decreased by 26%, resulting in a decrease in EBITDA margin in second quarter '24. The decrease in EBITDA is mainly attributable to the Digital and Printed Publications segment, then in second quarter '24 had the positive effects of revenues related to the national government tender offer to acquire school textbooks from different editors, some of which hire printing services from our subsidiary, OSA, 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. In Slide 10, we review the revenue breakdown and performance. Our main sources of revenue 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. The challenging macro scenario during the first half of 2024 for the drastic fall of the 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 39.2% in real terms in the first half of 2024. Circulation and payroll revenues include traditional newspaper and magazine sales, optional products and book sales and digital subscription and payroll among others. The shift in readers behavior and corporate subs translated and 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 25% year-over-year in second quarter '24. In addition, first quarter, and to a lesser extent, second quarter 2023, include revenues from higher school book sales from government biddings, which given the change in administration, did not materialize in 2024. Programming sales include the sale of our TV signals to cable TV operators, OTT platforms and content production for third parties, which are cyclical. The revenues for TV signals are generally tied to the number of subscribers of Pay TV operators and their ability to increase the price for their service. During 2023, Pay TV average prices increased below inflation, negatively affecting year-over-year revenue in real terms. However, it is worth mentioning that thanks to the higher price increases for cable TV services during 2024 and the renegotiation of some programming agreements, programming revenues decreased 12.9% in real terms year-over-year during second quarter '24 versus the 35.1% decrease registered in the first quarter. Please move to Slide 11, where we discuss a breakdown of costs and expenses. Our main costs are salaries, social security and benefits to personnel, printing another editorial product costs, including paper and other raw materials, programming coproduction and other costs related to productions aired by Artear, fees for services and distribution costs of editorial products. All the cost components increased below inflation during the first half 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 revenues. We will discuss the breakdown by segment shortly, but first, let's review the debt financial position as per Slide 12. The total debt as of June 2024 increased 12% to ARS 25.5 billion, mainly as a result of debt incurred to subscribe real bonds to cancel foreign currency commercial debt and higher U.S. dollar-denominated debt, partially offset by lower bank overdrafts. Approximately 59.3% of our total debt, that is USD 16.6 million, and 74% of cash and cash equivalents or $30.5 million are in U.S. dollars. Overall, we continue to show a manageable debt profile and low leverage. Moving on to the segment breakdown. We begin with the Broadcasting and Programming Division on Slide 14. Revenues decreased by 31.3% to ARS 34.5 billion in constant pesos in second quarter '24 compared to ARS 50.2 billion in second quarter '23. This was mainly due to lower advertising revenues, as explained when we discuss the revenue breakdown. Cost of sales decreased by 35.2% to ARS 19.4 billion. The decrease was mainly the result of cost management efforts with lower cost of air programming and lower salaries and severance payments in real terms. Selling and administrative expenses decreased 25.3% to ARS 7,673 million in constant pesos, mainly as a result of lower salaries and severance payments, lower fee for services included corporate fee charged by Grupo Clarín to its subsidiaries, which is eliminated in consolidation, and lower contingencies. As a result, during this period, adjusted EBITDA decreased 25.6% to ARS 7.4 billion, and the margin increased to 21.6% from the second quarter '23 figure of 19.9%. Prime time channel -- prime time for Channel 13 audience share decreased 17.3% and total time audience decreased by 1.7%. Our audience performance has allowed us to reach 30% of advertising market share. Now let's move on to the Digital and Printed Publications segment on the next slide. Total revenues decreased by 31.7% in real terms to ARS 32.2 billion in second quarter '24, mainly as a result of circulation and printing revenues related to the biddings for school text books of 2023, which did not materialize in 2024, lower advertising revenues in the context of falling activity, high inflation and drop in official advertising and lower traditional circulation revenues. The 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 payable revenues are gaining share as a percent of newspaper circulation revenues. Traditional paper copies regulation showed a decrease from levels for the same period of 2023 to 41,700 average daily copies, while payable subs reached [ 613.4 thousand ] as of second quarter '24, 12.9% higher than second quarter '23 driven by corporate subs. Cost of sales decreased 26.4% to ARS 20.1 billion in second quarter '24 compared to ARS 27.3 billion in second quarter '23, mainly due to lower costs related to the decrease in textbook sales and lower printed circulation, lower salaries and severance payments in real terms given the restructuring that took place in second quarter '23. Selling and administrative expenses decreased by 19.8% to ARS 14.8 billion in second quarter '24, mainly due to lower salaries and severance payments, lower fees for services, lower distribution costs related to lower traditional circulation revenues and general cost containment efforts. Regarding Other segments, turn to Slide 16. During second quarter '24, net sales in real terms decreased by 32.9% to ARS 4.6 billion in real terms. EBITDA resulted in negative ARS 1.9 billion. Gestión Compartida is a shared services company and derives its revenues from administrative and corporate services rendered for 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. It is also worth mentioning that Gestión Compartida has been expanding its services, finding growth opportunities through joint ventures, such as Quanix, HR technology for staff management, and Hiberus Argentina, IT consulting, cloud services, fab consulting and media technology. Consequently, some of the revenues, staff and costs formerly allocated in Gestión Compartida and [ AGEA ] in the case of Hiberus, are now allocated in these unconsolidated affiliates. This segment also includes corporate costs. Having gone through the segment breakdown, please refer to Slide 16 for a review of -- to Slide 17 (sic) [ Slide 18 ] -- I'm sorry, 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 composition of our float, as shown on the slide, approximately 31% is represented by GDSs and 69% is local float. That concludes our comments for today. We will now open for Q&A. Operator, we are ready for questions, please.

[Operator Instructions]

So we have a few questions here. So the first one [Foreign Language]

Okay. Thank you, Camilla. I will answer the questions in English so that they are taken into the Bloomberg and other platforms that get a transcript of this call. If you wish, I can answer them in Spanish as well, if you send me an email to our IR email address. The first question was regarding the strategy of Grupo Clarín regarding the printed newspaper, and how does this affect Papel Prensa. The printed newspaper while declining in circulation is still a profitable business. It still has positive marginal contribution. So we -- of course, we are monitoring the evolution of the circulation, but we still think there is life to the printed newspaper. Regarding how does this affect Papel Prensa. In the past, we were -- Papel Prensa was fully committed to producing newsprint paper, but it has undergone a very important reconversion of its plant. In order to produce paper, which is used in production of cardboard for logistics services. A liner paper that is used to produce a specific cardboard that is used in production of boxes. So Papel Prensa doesn't really rely on selling newsprint but relies on the new sale of these sort of papers, and is growing as digital commerce and logistics is growing as well. Regarding what we should expect in terms of EBITDA and margin, I guess, for the rest of the year? Well, this is very highly dependent on how the performance of Argentina's economy goes for the second quarter -- for the second half of the year. Our industry is very reliant on advertising revenues, which are fully translated into EBITDA. They don't have cost, but we see some green lights, some signs of recovery in certain segments of the advertising market. And then the third question was regarding if we had any divestment in the short or medium term in any business unit that is not profitable. The answer is no. We recently sold our participation in Diario Los Andes, which was a regional newspaper that had some struggles. But there are no other business units that are experiencing trouble that would make us think that we would have to divest in them. Of course, there is some seasonal effect, but in the whole picture, there's no business unit that is not profitable. And if we have any project in our pipeline. For now, we're still trying to work with the macroeconomic conditions that we have and keep our businesses performing. So we don't have, in the short term, any investments on our pipeline. I think that answers the questions. If you need the answer in Spanish, you can always contact our IR team via phone or e-mail.

It appears that we have no questions at this time. I would like to turn the program back over to Samantha Olivieri for closing remarks.

Thank you, Danielle. Thank you all for your interest in our company, and your questions. We look forward to meeting you for the third quarter '24 results. Have a great day.

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 questions. I look forward to speaking with you about 3Q '24 results. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.