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 second quarter 2025 as per the earnings release distributed yesterday, August 11, 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 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 Clarín's clearance 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 the webcast presentation that can be found at ir.grupoclarin.com under the Financial Information section. Following the presentation, there will be a question-and-answer session. You may submit your questions throughout the event by clicking in the submit a question box on your screen. I will now introduce our speaker, Mr. 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 Ms. 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. By the end of 2023, when the current administration took office, Argentina was running persistent twin deficits, triple-digit inflation and the Central Bank's net reserves were netted. Meanwhile, the economy operated under heavy market intervention, multiple exchange rates, strict capital controls and utility tariffs far below operation cost levels all of which intensified relative price distortions and fiscal pressures. In this context, the new administration implemented a stabilization program centered on fiscal surplus by reducing public spending. It is also focused on monetary discipline, including the improvement of the Central Bank's balance sheet while also correcting relative prices, mainly through subsidy reductions and stabilizing the exchange rate. Key macro indicators have shown progress so far. However, the risks persist and require close attention, particularly in relation to the main pillars of the economic program. The fiscal anchor remains at the core of the stabilization program. So far this year, the national public sector has accumulated a primary surplus of 0.9% of the GDP. The government has set a 1.6% target, which is 0.3% above the one agreed with the IMF. This will be the second consecutive year with the fiscal surplus, something Argentina has not achieved since 2008. Inflation has also continued its downward trend from [ 211% ] in 2023 to 118% in 2024 to 39% year-over-year as of June 2025. It is worth mentioning that prices have remained stable despite the partial lifting of foreign exchange controls and the new banded float system, which led to a higher official exchange rate. The banded float system is serving as a transitional framework towards market normalization. While the official rate has remained within defined bands, it is currently trading above the midpoint, reflecting some pressure in the lead-up to the October midterm elections and a seasonally weaker supply inflation, which is this government's most valuable achievement. An indicator to be monitored is the performance of the current account and the purchase of dollars in the official market by the nonfinancial private sector. During the first half of the year, the current accounts showed a larger than expected deterioration with a deficit of more than $2.7 billion. This was partly due to real appreciation under the previous crawling peg system. The move towards a more flexible foreign exchange system may help correct this imbalance over time. Regarding the purchase of dollars in the official market by the nonfinancial private sector after the partial lifting of foreign exchange controls in April, individuals purchased more than $9.3 billion. Given this trend, the external sector is showing a dynamic that should be closely monitored. As a result of the stabilization program, economic activity has shown a V-shaped recovery according to the monthly economic activity index, the economy bottomed out in April 2024 with a 3.1% year-on-year decline. Then it gradually improved, averaging a 1.3% decline in 2024. Data for the first 4 months of 2025 suggests that if current levels continue, GDP could grow by around 5% this year, mainly due to the carryover effect from the rebound that began in the second semester of 2024. We should also consider that this recovery has been highly irregular across sectors. The best performing sectors are agriculture and energy by construction, industry and mass consumption are still lagging. In addition, household disposable income remains significantly constrained because real wages have not risen enough to offset the higher cost of living. Finally, the focus of the market is clearly on the electoral cycle. The upcoming midterm elections in October will be critical -- would be a critical moment to test if Argentinians validate the direction of the economic program. The outcome will determine the level of political support for further structural reforms and will be a key factor in the evolution of Argentina's Country Risk Index, which remains elevated above 773 basis points, reflecting limited access to international capital markets even in a context where the Central Bank is gradually accumulating reserves. Having gone through the macro overview, please turn to Slide 6 for a quick review of some highlights for the first half of 2025. With a positive trend in inflation and the degree of GDP and consumption recovery during the second half of 2024, a trend that continued during the first half of '25 advertising revenues continued to show a recovering trend on a year-over-year basis, increasing 21% in the second quarter, the third consecutive interannual increase since the fourth quarter '21, although 2024 second quarter had been a weak quarter with a marked drop in activity following the jump in the FX rate of December 2023 and the negative side effects of the changes implemented by the government to correct the inherited economic imbalances. Circulation revenues also showed a positive performance on a year-over-year basis mainly the effect of school textbook sales that hadn't occurred in 2024 and higher prices for both the printed newspaper and paywall subscription in part from price adjustment carried out during 2024. We continue to consolidate our online content proposal. Thanks to corporate alliances, as of June '25, we have close to 769,300 total subs and 684,500 paid digital subs clarin.com, 11.6% higher than June 2024. We had a marked improvement in EBITDA and margin, mainly the result of school textbook sales and higher circulation and advertising revenues, albeit compared to a particularly weak 2024 second quarter. The improvement in economic performance and the decrease in the inflation rate had a positive effect on EBITDA and working capital, allowing our subsidiary AGEA to significantly reduce its short-term debt. In addition, it applied foreign currency liquidity to cancel its cross-border debt. Having gone through the highlights overview, please turn to Slide 7 for a brief analysis of Grupo Clarin's financial performance for the first half of 2025. 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 first half and second quarter '25 include the effects of the adoption of inflationary accounting in accordance with the International Accounting Standards 29. For comparative purposes, the results restated by inflation corresponding to June 2024 and contain the effect of year-over-year inflation as of June 2025, which amounted to 39.4%. In this presentation, we included some figures and historical values for the sake of clarity. Revenues for the first half of 2025 increased by 98.9% to ARS 221.3 billion, above average inflation rate. Considering IAS adjustment, revenues increased by 29.5% from ARS 179.1 billion to ARS 232 billion mainly due to higher circulation revenues and higher advertising revenues in real terms, especially in the Broadcasting and Programming segment. 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 47.8 billion from ARS 3.2 billion and ARS 49.5 billion from ARS 4.9 billion in real terms driven by the EBITDA generated by the school textbook sales and the increase in revenues. Revenues for broadcasting and programming and for digital and printed publications represented 44% and 50% 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 ARS 30.2 billion from the 2024 negative figure of ARS 15.2 billion. The increase in net income financial results mainly as a result of a negative inflation adjustment result compared to a positive result to 2024 generated by an active net monetary position. Higher negative results from transactions involving securities, bonds and other placements, lower interest income and higher taxes and other financial charges. These effects were partially offset by lower interest expenses and liabilities related to the decrease in debt. The higher income from unconsolidated subsidiaries is driven by positive results at TRISA, Urbano Express and Canal Rural, which had registered losses in the same period of the previous year and higher positive results from Exponenciar partially offset by negative results of Papel Prensa due to a decrease in revenues. The higher other income and expense net is a result of a recovery of impairment of property and goodwill in 2025 higher than the 2024 results, which were mainly explained by the effect of sales of 100% of the 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. Moving on to Slide 8. Revenues for the second quarter '25 increased by 95.4% to ARS 129.8 billion in nominal pesos and EBITDA increased to ARS 35.7 billion in nominal pesos. If we consider inflation adjustment, revenues increased by 36.4%, while EBITDA increased by 827.8% mainly due to higher EBITDA in print and digital publications related to the school textbook sales and higher paywall and print prices, costs and expenses containment efforts and higher advertising revenues. And higher EBITDA in the Broadcasting and Programming segment as a result of our recovery in advertising revenues net of higher programming costs. Net income for the period attributable to equity shareholders in real pesos was ARS 25.2 billion. The increase in net income was mainly attributable to higher EBITDA partially offset by higher negative net financial results explained primarily as a result of a negative inflation adjustment result compared to a positive result in 2024, generated by an active net monetary position. Slide 9, please. As the graph show, revenues increased 36.4% in real terms, while costs increased by 3%, resulting in an expansion of EBITDA margin in the second quarter '25. The increase in EBITDA was mainly driven by the EBITDA generated by the school textbook sales and higher advertising revenues. And by selling and administrative expenses containment efforts partially offset by higher programming costs as the TV lineup was renewed. 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 with a 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 40% in real terms in the first half of 2024, while a lower interannual inflation rate during the fourth quarter and a degree of economic activity recovery resulted in a recovery in the advertising market, a trend that continued in 2025. Advertising revenues for the second quarter '25 increased 21.4% in real terms, a third consecutive positive year-over-year quarterly performance. It is worth mentioning that as advertising in the printed and digital publications is increasingly digital and advertising in the Broadcasting and Programming segment does not have variable costs increases in advertising revenue are reflected directly in EBITDA. Circulation and paywall revenues include traditional newspaper and magazine sales, optional products and book sales and digital subscription and payable, among others. The shift in readers behavior and corporate subs translated and paying digital subs increasing steadily since the paywall was launched. As inflation decelerates paywall average prices increased above inflation, resulting in higher revenues and real terms in this quarter. The pricing policy for traditional circulation has been to increase newspaper prices along and even above inflation, while copies sold have decreased 15.4% year-over-year in the second quarter. In addition, the second quarter 2025 includes higher revenues from school textbook government biddings, the main driver of higher revenues this quarter. Programming sales include the sale of our TV signals to cable TV operators and OTT platforms and content production for third parties, which are cyclical. The revenues for TV signals are generally tied to the number of subscribers that pay TV operators have and their ability to increase the price for their service. Thanks to the higher price increases for cable TV services during 2024 and first half of '25 and the renegotiation of some programming agreements during 2024 programming revenues increased above inflation in this quarter on a year-over-year basis. Please move to Slide 11, where we will discuss the 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, fees for services, programming co-production and other costs related to the productions aired by Artear, maintenance costs and distribution costs of editorial products. As increases to compensate for the loss of purchasing power of salaries following the high inflation registered during the first quarter of '24 were given with a delay during the remainder of the year, labor costs increased above inflation during the first half of '25 mainly the effect of the carry-on effect and the deceleration of the inflation rate. So the fees for services, although part are intercompany fees, which are eliminated in consolidation. Printing another variable costs, distribution costs and taxes, duties and contributions increased above inflation as a result of the increase in revenues and programming costs increased due to a more appealing and expensive TV lineup. Nonetheless, total costs increased below the increase in revenue, resulting in an expansion of EBITDA margin. We will discuss the breakdown of the segment shortly, but first, let's review the debt financial position as per Slide 12. Total debt as of June 2025 decreased 52% to ARS 17.1 billion. The improvement in operating performance and the lower inflation rate have allowed AGEA to cancel bank overdrafts and short-term debt contracted in 2024 to subscribe real bonds for the settlement of commercial debt and foreign currency and to repay the short-term operating debt, it had incurred due to the deterioration of EBITDA at the end of 2023 and the beginning of 2024. In addition, it canceled foreign currency structured loans using foreign currency liquidity. Furthermore, the decrease in total debt is also explained by the effect of the lower increase in exchange rates relative to inflation on foreign currency debt. These effects were partially offset by higher debt of Radio Mitre and Carburando. Approximately 88.5% of our total debt or $12.5 million and 52% of cash and cash equivalents or $28.7 million are in foreign accounts. 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 increased by 21.5% to ARS 58.4 billion in constant pesos in second quarter '25 compared to ARS 48.1 billion in second quarter '24. This was mainly due to higher advertising revenues driven by the lower inflation and the economic recovery registered versus the same period of the previous year and by higher programming revenues as a result of higher subscription prices charged by cable TV operators to their clients and the renegotiation of some programming agreements, which impacted the revenues on the sales of the segments produced and distributed by our subsidiary Artear. Cost of sales increased by 9.9% to ARS 29.7 billion. This increase was mainly due to higher programming costs as the TV lineup was renewed with a more appealing content and by higher salaries in real terms mostly as a result of the carry-on effect of raises given to compensate for past inflation during the last 9 months of 2024 and the deceleration of the inflation rate. Selling and administrative expenses increased by 8.2%. This is mainly attributable to higher fees for services, part of which are eliminated after consolidation, higher utilities, higher salaries, social security contributions and severance payment expenses, partially offset by lower contingencies. As a result, during this period, adjusted EBITDA increased significantly, reaching ARS 17.6 billion and margin increased to 30.1% from the second quarter '24 figure of 21.6%. Prime time for Channel 13 audience share decreased 14.4%, while total time audience share decreased by 11.4%, mainly the result of an increase in viewership, which was capitalized by our competitor, Telefe mainly from the Soccer leagues World Championship and the seasonal finale of Big Brother. Our audience performance has allowed us to reach 31.3% of advertising market share. Now let's move on to the digital and printed publications segment on the next slide. Total revenues increased by 52.7% in real terms to ARS 68.6 billion in second quarter 25%, mainly as a result of higher circulation revenues driven by school textbook sales as a result of the government biddings, which hadn't taken place in 2024. And to a lesser extent, higher newspaper cover prices, partially offset by a decline in the number of printed copies sold, higher paywall ARPU with an increase in subs and higher advertising revenues in real terms given the lower inflation and the degree of economic recovery registered versus the previous year, higher other sales and higher printing services. This 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 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 2024 to 35,300 average daily copies, while paying paywall subs reached 684,500 as of the second quarter '25, 11.6% higher than second quarter '24, driven by corporate subs. Cost of sales increased by 12.1% to ARS 31.4 billion in second quarter '25 compared to ARS 28 billion in second quarter '24 mainly the result of higher variable costs and printing and other costs of editor products related to the school textbooks, partially offset by lower maintenance expenses and lower salaries, social security and contributions and severance payments. Selling and administrative expenses decreased by 9.7% to ARS 18.7 billion in the second quarter, 25%, mainly due to lower salaries, social security contributions and severance payments, lower advertising and promotion expenses and lower fee for services. Regarding the other segment, turn to Slide 16. During second quarter '25, net sales in real terms increased by 22.6% to ARS 7.8 billion. This increase was mainly the result of corporate fees, which are eliminated in consolidation. EBITDA resulted in ARS 199.8 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 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 for HR technology and staff management, Hiberus Argentina, IT consulting, cloud services, SAP consulting, software development and digital transformation, data analytics and media technology. 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 the total float is approximately 20%. Regarding the composition of our float, as shown on the slide, approximately 19% is represented by GDS and 81% is local float. That concludes our comments. We will now take your questions. Nick, 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 any closing remarks.

Thank you, Nick. I want to thank you all for your 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 the third quarter '25 results. Have a great day.

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