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

Good morning, and welcome to Grupo Clarin's Conference Call. Today, the team will discuss results for the third quarter 2024 as per the earnings release distributed last Friday, November 8. My name is Anthony, 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 the company 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 new or ongoing industry and economic regulations, possible changes in demand for Grupo Clarin'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. 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 Clarin has also posted a webcast presentation that can be found at ir.grupoclarin.com under the Financial Information section. [Operator Instructions] I will now introduce our speaker, Mr. Samantha Olivieri, Head of Investor Relations, for the Q&A session. She will be joined by Grupo Clarin's Controller and Audit Manager, Mr. Ivan Acevedo and Mr. Marcelo Boncagni, respectively. It is now my pleasure to turn the call over to Mr. Samantha Olivieri. Please go ahead.

Thank you, Anthony. 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 the previous calls, in its first months in office, the government implemented a stabilization program based on 3 key anchors: a fiscal anchor, an exchange rate anchor and a monetary anchor. For the first time in over a decade, a fiscal surplus was achieved. On the exchange rate front, the government stabilized the currency through our crawling peg policy set around 2% monthly adjustment within a framework of currency controls. Additionally, monetary issuance was stopped. The government also advanced in adjusting relative prices, in particular, for regulated services. Regarding inflation, there was progress in slowing down the speed of price increases. The rate of deceleration was more pronounced during the initial months. However, in recent months, this deceleration has moderated, aligning more closely with a 2% monthly crawling peg. The Central Bank has focused on improving its balance sheet by eliminating remunerated liabilities and gradually rebuilding gross international reserves. In addition, the recent tax amnesty program led to an increase in private sector dollar deposits of nearly $16 billion, that is 86% in just 2.5 months. This inflow of foreign currency, along with a substantial agricultural sector exports and increased corporate bond issuances boosted to Central Bank's gross reserves to over $30 billion. Market confidence in the economic program has shown signs of improvement. Since the change in government, the country's risk index has dropped by 62% and fallen beyond -- below 900 points, the lowest level in the last 5 years. This is an encouraging indicator given the need to reaccess international debt markets. The stabilization program is having a negative impact on activity and consumption. It is estimated that the economy will contract by 3.5% this year, but will grow by 5% in 2025. The decline is concentrated in the early months of the year after which the floor was reached and a gradual signs of improvement begin to emerge. The monthly economic activity estimator has increased for the second consecutive month, but it's still showing a 3.8% year-on-year decline. The best-performing sectors this year are agriculture and energy, while the sectors still lagging our industry, construction and retail. Looking forward, despite the progress made, the current administration will face several challenges; legislative elections next year, which will test approval levels during the stabilization program, lifting currency controls and returning to the international debt market. Having gone through the macro overview, please turn to Slide 6 for a quick review of some of the highlights for 2024. We are starting to see a recovery in the trend of advertising revenues from 40% year-on-year decrease in real terms as of June '24 to 24% year-on-year decrease in the third quarter. mainly in the Broadcasting and Programming segment. In an extremely challenging macroeconomic environment, thanks to ongoing cost contention efforts, the seasonal effect on revenues, the better advertising revenues performance and price increases of program services, the Broadcasting and Programming segment continued to show a recovery from first and second quarter 2024. EBITDA margin for this segment resulted in 24.4% in the third quarter of 2024 from 16.1% in the third quarter of 2023. Thanks to the cost containment measures and the recovery in revenues versus the previous quarter, the Digital and Printed Publications segment has turned around its negative margin. EBITDA margin for this segment resulted in 8.9% from 1.8% in third quarter 2023 and a negative 8.4% of second quarter '24. Having gone through the highlights overview, please turn to Slide 7 for a brief analysis of Grupo Clarin's financial performance for the first 9 months of 2024. 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 2024 include the effects of the adoption of inflationary accounting in accordance with International Accounting Standards 29. For comparative purposes, the results we stated by inflation corresponding to September 2023 contain the effect of year-over-year inflation as of September 2024, which amounted to 209%. In this presentation, we included some figures in historical values for the sake of clarity. Revenues for the first 9 months of 2024 increased by 149.5% to ARS 195.9 billion in nominal pesos. Considering IAS adjustment, revenues decreased by 31.6% from ARS 338.8 billion to ARS 231.8 billion in real pesos, mainly due to lower advertising across all segments lower circulation and printing revenues and Digital and Printed Publications and lower 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 16.7 billion from ARS 8.5 billion and ARS 17.9 billion from ARS 36.6 billion in real terms. Revenues for Broadcasting and Programming and for Digital and Printed Publications represented 47% and 46% 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 10.7 billion from the 2023 figure of ARS 4.3 billion. The increase in negative net income was mainly the result of lower EBITDA in real terms, higher income tax and negative net income from unconsolidated affiliates from a positive figure in 2023, partially offset by a positive inflation adjustment in 2024 versus a negative figure in 2023, lower depreciation and amortization and higher other income and expenses net as a result of the sale of the 100% capital stock in Diario Los Andes and for the retribution received by the subsidiary GC Minor, from the company, Killimo, for a share buyback process during the second quarter of 2024. The change in net income from unconsolidated affiliates is explained mainly due to higher negative results in TRISA related to higher cost of television rights of mega events for Olympic Games and Copa America and personnel restructuring expenses, partially offset by a positive income tax effect in this subsidiary as well as by lower net positive results from subsidiaries Papel Prensa generated by lower EBITDA due to the fall in paper sales volume in the local market, partially offset by a positive income tax charge versus a negative charge in 2023 and Ríos de Tinta all partially offset by improved results from subsidiary Exponenciar and by results of the new subsidiary, Quanix. Moving on to Slide 8. Revenues for the third quarter 2024 increased by 167.3% to ARS 84.6 billion in nominal pesos and EBITDA increased by 415% and to ARS 13,479.6 million in nominal. If we consider inflation adjustment, revenues decreased by 19%, while EBITDA increased by 80% mainly due to the higher EBITDA in Digital and Printing Publications and in Broadcasting and Programming segment and lower negative EBITDA in the Other segment. Net income for the period attributable to equity shareholders in real pesos was ARS 1,524.4 million. The increase in net income was mainly attributable to a lower negative net financial results explained primarily by a positive inflation adjustment in 2024 versus the negative figure in 2023, the higher EBITDA in real terms and lower depreciation and amortization, partially offset by negative versus positive figures in 2024 in income tax and in income from unconsolidated affiliates, which are largely explained by lower net income due to the lower EBITDA in a subsidiary of Papel Prensa and higher negative net income in TRISA as explained in the 9 months results. Slide 9, please. As the graphs show, revenues decreased 19% in real terms, while costs decreased by 26.7%, resulting in an expansion of EBITDA margin in the third quarter 2024. The increase in EBITDA is mainly driven by cost and expenses efficiencies achieved and a lower year-on-year decline in revenues when compared to the first half of the year. Next slide, please. On Slide 10, we review the revenue breakdown and performance. Our main sources of revenue are advertising, circulation and payables 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 2024 was a drastic fall of economic activity and the acceleration of inflation of 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, which resulted in advertising revenues decreasing 40% in real terms in the first half of 2024, while the lower interannual inflation rate during the third quarter and the degree of economic activity recovery have resulted in a recovery in the advertising market in the Broadcasting and Programming segment. Thus, advertising revenues for the third quarter 2024 decreased 24.4%, significantly lower than the decrease of the previous quarters of the year. Circulation and paywall 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 payroll was launched. The pricing policy for traditional circulation has been to increase newspaper prices along inflation, while copies sold have decreased 25.4% year-over-year in the third 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 the 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 have stabilized on a year-over-year basis on the third quarter. Please move on to the next slide where we discuss a breakdown of costs and revenues. Our main costs are salaries, social security and benefits to personnel, printing and other editorial product costs, including paper and 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 third quarter in the 9 months 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 now discuss the breakdown by segment -- we will discuss the breakdown by segment shortly, I'm sorry. But first, let's review the debt financial position as per Slide 12. The total debt as of September 2024 increased 26.2% to ARS 27.8 billion, mainly as a result of debt incurred to subscribe BOPREAL bonds to cancel foreign currency commercial debt and higher short-term operating debt at AGEA due to the decline in EBITDA, partially offset by lower debt resulting from the divestment in the Diario Los Andes and by the effect of lower exchange rate variation relative to inflation on foreign currency debt. Additionally, foreign currency loans were taken to settle local currency bank overdrafts. Approximately 57% of our total debt or $16.5 million and 64.9% of cash and cash equivalents or $31.5 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 14. Revenues decreased by 15.8% to ARS 43.6 billion in constant pesos in third quarter '24 compared to ARS 51.8 billion in third quarter '23. This was mainly due to the lower advertising revenues as explained when we discussed the revenue breakdown. Cost of sales decreased by 29.4% to ARS 22.3 billion. The decrease was mainly the result of cost management efforts with lower cost of air programming, lower salaries and severance payments and lower fees for services in real terms. Selling and administrative expenses decreased by 10.3% to ARS 10,690 million in constant pesos, mainly as a result of lower contingencies, lower salaries and severance payments and lower advertising expenses, partially offset by higher fees for services included corporate charge -- corporate fee charged by Grupo Clarin and its subsidiaries, which is eliminated in consolidation. As a result, during this period, adjusted EBITDA increased 27.8% to ARS 10.6 billion and the margin increased to 24.4% from the third quarter '23 figure of 16.1%. Prime Time Channel 13 audience share increased 5.5% and total time audience share increased by 6.7%. Our audience performance has allowed us to reach 32.5% of advertising market share. Now let's move on to the Digital and Printed Publications on the next slide. Total revenues decreased by 23.2% in real terms to ARS 40.8 billion in third quarter '24, mainly as a result of lower advertising revenues in the context of falling activity, high inflation and drop in official advertising and lower collectibles and 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 payroll 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 39,200 average daily copies, while payroll subs reached 612,300 as of third quarter '24, 5.3% higher than third quarter '23 driven by corporate subs. Cost of sales decreased by 33.1% to ARS 22 billion in third quarter '24 compared to ARS 32.9 million in third quarter '23 mainly due to lower costs related to the decrease in collectibles and printed circulation and lower salaries and severance payments in real terms and the unconsolidation of Diario Los Andes. Selling and administrative expenses decreased by 21.3% to ARS 15.1 billion in third quarter '24, mainly due to lower salaries and severance payments lower fees for services, lower advertising expenses and general cost containment efforts. Regarding Other segment, turn to Slide 16. During third quarter '24, net sales in real terms decreased by 18.4% to ARS 5,671.4 million. EBITDA resulted in negative ARS 270.6 million. Gestión Compartida is a shared services company and derives its revenues from administrative and corporate services rendered to Grupo Clarin and its subsidiaries, which are eliminated in consolidation. During the last years, it has been increasing the participation of third-party revenues in 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, SAP consulting, software development, digital transformation, data analytics 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 revenues from corporate fees, which are eliminated in consolidation and corporate costs. 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 in the slide, approximately 21% is represented by GDSs and 79% is local float. That concludes our comments. We will now take your questions. Anthony, 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 to Samantha Olivieri for any closing remarks.

Thank you, Anthony. I want to thank you all for your attendance today. We appreciate your interest in our company. Please do not hesitate to contact us if you have any questions. I look forward to speaking with you about fourth quarter '24 results. Have a great day.

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