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

Good morning, and welcome to Grupo Clarín's conference call. Today the team will discuss the results for the last quarter 2024 as per the earnings release distributed last Monday, March 10. My name is Nick, and I will be your conference operator for 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 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. 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. [Operator Instructions] I will now turn -- I will now introduce our speaker, Mrs. Samantha Olivieri, Head of Investor Relations. For the Q&A session, she will be joined by Grupo Clarín's Controller and Audit Manager, Mr. Ivan 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, Nick. 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. After 13 months in office, the government has achieved better-than-expected results despite the inevitable short-term costs associated with dramatic macroeconomic reordering. This reordering was based on a stabilization program with 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. The reversal of the recurring fiscal imbalance is basically explained by the unprecedented cuts in public spending made during the year of close to 30% and equivalent to almost 4 points of GDP. As a result, the monetary issuance derived from the Central Bank's assistance to the treasury was eliminated. On the exchange rate front, within the framework of currency controls, the government stabilized the currency through our crawling peg policy, initially set at around 2% monthly adjustment. As inflation declined and the program gained more credibility, the crawling peg was recently reduced to 1% per month. The government also advanced in adjusting relative prices, particularly for regulated services. Regarding inflation, there was a significant progress in slowing down the speed of price increases. The CPI index closed 2024 with variations of 2.7% monthly and 118% on a yearly basis, well below the 25% and 211% of 2023. This inflation dynamic allowed monetary policy rates to be lowered from 133% to 29% nominal annual rate, while the interest rate remained above the pace of devaluation to mitigate exchange rate and inflationary pressures. On its part, the Central Bank has focused on improving its balance sheet by eliminating remunerated liabilities and gradually rebuilding gross reserves. The tax amnesty program led to nearly 32 billion in private U.S. dollar deposits, a 75% year-over-year increase. The strong agricultural and energy exports, and corporate bonds, which were partially driven by the RIGI tax incentive for large investors boosted gross reserves from $21 billion to $28.2 billion. In addition, market confidence in the economic program has shown signs of improvement. Since the beginning of the new administration, the country's risk index has dropped to levels of around 700 or 800 basis points, the lowest in the last 5 years. This is an encouraging indicator given the need to re-access international debt markets in order to strengthen the Central Bank's fragile reserve position. The stabilization program had a negative impact on activity and consumption. The GDP for 2024 averaged a decline of around 1.8%, below expectations. The decline concentrated in the early months of 2024, after which a floor was reached and gradual signs of improvement began to emerge. The monthly economic activity indicator has shown consecutive increases, surpassing reordering program levels. The best performing sectors in 2024 were agriculture and energy, while the lagging sectors were industry, construction and retail. Regarding perspective, it is worth mentioning that, even despite the advancements achieved in the macroeconomic situation, it has yet to prove itself sustainable in time. The reordering centered in the fiscal balance has generated positive stabilization signals in the economy. However, the challenges to be faced are several, amongst which are the degree of adaptation to the new exchange parity of the different economic sectors, the dynamic of the external front and, in particular, the need to accumulate Central Bank reserves, and the final exchange and monetary regime to be adopted once the still-in-place currency controls are lifted. Consolidating the fiscal balance in an election year in order to keep advancing in the deflationary process and setting the base of a sustainable growth path will be this administration's main challenge for its second year in office. Having gone through the macro overview, please turn to Slide 6 for a quick review of some highlights for 2024. With a positive trend in inflation and a degree of GDP and consumption recovery during the second half of 2024, advertising revenues followed a recovering trend during the year from 40% year-over-year decrease in real terms as of June to 23% year-over-year increase in the fourth quarter of 2024, the first interannual increase since the second quarter, although fourth quarter '23 has been a weak quarter in the midst of the political uncertainty generated by the presidential election. In an extremely challenging macroeconomic environment, thanks to ongoing cost containment efforts, the seasonal effect in revenues and the recovery of the advertising market during the second half of the year, the Broadcasting and Programming segment continued to show improvement. EBITDA margin for the segment resulted in 29% in the fourth quarter of '24 and 21% for the full year, versus 8.5% in fourth quarter '23 and 13.5% for the full year 2023, excluding the effect of the restructuring cost in Pol-Ka. We continue to consolidate our online content proposals. Thanks to corporate alliances, we have reached close to 749,000 total subs and 656,900 paying digital subs in clarin.com by the end of December '24, 9% higher than December '23. We continue to show a strong financial position. Having gone through the highlights overview, please turn to Slide 7 for a brief analysis of Grupo Clarín's financial performance for the full year 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 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 full year and last quarter 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 December 2023 contain the effect of year-over-year inflation as of December 2024, which amounted to 117.8%. In this presentation, we included some figures in historical value for the sake of clarity. Revenues for the full year 2024 increased by 145.2% to ARS 296.7 billion in nominal pesos. Considering IAS adjustment, revenues decreased by 24.9% from ARS 471.4 billion to ARS 353.8 billion in real pesos, mainly due to lower advertising across all segments, lower circulation and printing revenues in Digital and Printed Publications and lower programming revenue. 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 30.4 billion from ARS 8.6 billion and ARS 33.4 billion from ARS 37.7 billion in real terms. Revenues for Broadcasting and Programming and for Digital and Printed publications represented 48% and 45% 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 4 billion from the 2023 figure of ARS 23 billion. The reduction in negative net income was mainly the result of lower negative net financial results, mainly from positive inflation adjustment in 2024 versus a negative figure in 2023, and lower depreciations and amortizations, partially offset by the negative charge in income tax versus a positive figure in 2023 as a result of the dilution of accumulated losses, which the company does not restate by inflation until it is certain that they can be applied in the tax return for the fiscal period, and by lower EBITDA. Moving on to Slide 8. Revenues for the fourth quarter of 2024 increased 137.3% to ARS 100.8 billion in nominal pesos and EBITDA increased to ARS 13.6 billion nominal pesos. If we consider inflation adjustment, revenues decreased by 1.9%, while EBITDA changed by minus 847.8%, mainly due to the higher EBITDA in the Broadcasting and Programming segment as a result of a recovery in advertising revenues and cost and expenses containment efforts. Net income for the period attributable to equity shareholders in real pesos was ARS 7.6 billion. The increase in net income was mainly attributable to positive versus negative net financial results, explained primarily by a positive inflation adjustment and net borrowing exchange results in 2024 versus negative figures in 2023, the higher EBITDA in real terms, and positive income from unconsolidated affiliates versus a negative result in 2023 due to lower negative inflation adjustment, a higher positive income tax charge and higher EBITDA of the subsidiary, TRISA, partially offset by the negative consolidated charge in income tax versus a positive figure in 2023 as a result of the dilution accumulated in losses which the company does not restate by inflation until it is certain that they can be applied in the tax return for the fiscal period. Slide 9, please. As the graph shows, revenues decreased 1.9% in real terms, while costs decreased by 16.6%, resulting in an expansion of EBITDA margin in the fourth quarter 2024. The increase in EBITDA is mainly driven by cost and expenses efficiencies achieved and a lower year-over-year decline in revenues when compared to the first half of the year. Next slide, please. By the end of 2023, and given the context of the fiction production industry for open television, which forced to the conversion of the business model of fiction production companies, Pol-Ka resumed its reorganization plan aimed at achieving a variability and optimization of its structure to fit the new market scenarios. The restructuring plan included the celebration of around 110 termination agreements with staff for a total amount of approximately ARS 2.4 billion in constant pesos as of December 2023. When we eliminate the effect of the onetime cost of Pol-Ka restructuring in 2023, adjusted by the year-over-year inflation as of December 2024, total costs decreased by 12.4%, mainly due to lower salaries in real terms, lower cost of their shows, lower variable costs from Digital and Printed Publications segment related to the lower circulation revenues and cost-containing efforts, and margin increased from ARS 14 billion -- to ARS 14 billion in 2024 from ARS 3.4 billion positive in 2023. Next slide, please. In Slide 11, we review the revenue breakdown and performance. Our main sources of revenues are advertising, circulation and paywall and programming. Advertising is typically tied to the performance of Argentina's economy. Advertisers' spend budget is normally approved at the beginning of the year. The challenging macro scenario during 2024 with the drastic fall of the economy 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 government's policy with respect to official advertising, resulted in advertising revenues decreasing 40% in real terms in the first half of the year, while the lower interannual inflation rate during the fourth quarter and a degree of economic activity recovered have resulted in a recovery in the advertising market. Thus, advertising revenues for the first -- fourth quarter of 2024 increased 23.1% in real terms, the first positive year-over-year performance since second quarter '22. 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 reduced 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 25.7% year-over-year in the fourth quarter of 2024. In addition, the first quarter of '24 -- '23 and, to a lesser extent, the second quarter of 2023, include revenues from higher school book sales from government bidding, which, given the change in administration, did not materialize in 2024. Programming sales include the sale of our TV segment to cable TV operators and OTT platforms and content production for third parties, which are cyclical. The revenues for TV segment 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 from the third quarter of 2024. In addition, it is worth noting that fourth quarter '23 includes revenues from production for third parties in Pol-Ka. Excluding this effect, programming revenues increased above inflation in the fourth quarter of '24. Please move to Slide 12 where we discuss a breakdown of costs and expenses. Our main costs are salaries, social security and benefits to personnel, printing and other 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 the editorial products. All the cost components increased below inflation during 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 13. The total debt as of December '24 decreased 41.1% to ARS 17.3 billion, mainly as a result of the effect of the lower exchange rate variation relative to inflation on foreign currency debt. Additionally, foreign currency loans were taken to settle local currency short-term debt in the subsidiary, Radio Mitre, and foreign currency cash was applied to cancel dollar-denominated debt and short-term local debt undertaken during the year in the subsidiary, AGEA. Approximately 71.8% of our total debt or $12 million and 54.8% of the cash and cash equivalents or $21.8 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 Broadcasting and Programming division on Slide 15. Revenues increased by 3.7% to ARS 54 billion in constant pesos in the fourth quarter '24, compared to ARS 52.1 billion in fourth quarter '23. This was mainly due to the higher advertising revenues as explained when we discussed the revenue breakdown, partially offset by lower programming revenues as there were no productions of TV shows for third parties during this year while there had been in fourth quarter '23. Cost of sales decreased by 25.7% to ARS 26.8 billion. The decrease was mainly the result of cost management efforts with lower cost of the aired content, lower salaries and severance payments and lower fees for services in real terms. Selling and administrative expenses, excluding the effect of the restructuring in Pol-Ka in 2023, remained stable. As a result, during this period, adjusted EBITDA increased 252.2% to ARS 15.6 billion and the margin increased to 28.9% from the fourth quarter '23 year of 8.5%. Prime time for Channel 13 audience share increased by 0.8% and total time audience share increased by 2.9%. Our audience performance has allowed us to reach 32.7% of advertising market share. Now let's move on to the Digital and Printed Publications on the next slide. Total revenues decreased by 8.2% in real terms to ARS 45.8 billion in fourth quarter '24, mainly as a result of lower printing revenues as fourth quarter of '23 included revenues related to printing of electoral ballots and political brochures, partially offset by higher advertising revenues as advertising market recovered during this quarter. Circulation revenues showed similar figures in fourth quarter '24 and fourth quarter '23 with an increase in optional products and paywall revenues, offset by the unconsolidation of Diario Los Andes, lower traditional newspaper circulation and lower book sales at our retail bookstore book sales. The 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 2023 to 37,800 average daily copies, while paywall subs reached 656,900 as of the fourth quarter '24, 8.5% higher than fourth quarter '23, driven by corporate subs. Cost of sales decreased by 1.7% to ARS 28.3 billion in fourth quarter '24, compared to ARS 28.8 billion in fourth quarter '23, mainly due to lower costs related to the decrease in printed newspaper circulation, partially offset by higher collectible costs and lower salaries and severance payments in real terms and the unconsolidation of Diario Los Andes, and lower costs for the printing of electoral ballots and political brochures. Selling and administrative expenses decreased by 11.9% to ARS 18.2 billion in fourth quarter '24, mainly due to lower contingencies, lower salaries and severance payments, lower distribution costs and general cost containment efforts. Regarding Other segment, turn to Slide 17. During fourth quarter '24, net sales in real terms decreased by 5.7% to ARS 6.7 billion. EBITDA resulted in negative ARS 853.1 million pesos. 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 in its total revenues, generating new sources of income. It's 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 Everis Argentina, IT consulting, cloud services, stack consulting, software development, digital transformation, data analysis 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. The segment also includes revenues from corporate service fees, which are eliminated in consolidation and corporate costs. Having gone through the segment breakdown, please refer to Slide 19 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 21% is represented by GDSs and 79% is local float. That concludes our comments. We will now take your questions. Nick, we are ready for questions, please.

Thank you. At this time, we will open the floor for your questions. [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, Nick. I want to thank everyone for their attendance today. We appreciate your interest in the company. Please do not hesitate to contact us if you have any questions. I look forward to speaking with you about first quarter '25 results. Have a great day.

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