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 first 9 months and third quarter of 2025 as detailed in the earnings release distributed on November 10. My name is Nick, and I will be your conference operator today. This call is for investors and analysts only. Questions from the media will not be taken at this time. If you are a member of the media and have questions, please contact big Corporate Communications. Comments made during today's call may contain forward-looking statements regarding Grupo Clarin's future performance, plans, strategies and targets. Such statements involve risks and uncertainties that could cause actual results or operations to differ materially. These uncertainties include, but are not limited to, the impact of industry and economic regulations, changes in demand for Grupo Clarin's products and services and the broader 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 require systems during today's call, please contact FIG Corporate Communications in New York at (917) 691-4047 or Grupo Clarin in Buenos Ares at +54-11-4309-7104. The webcast presentation is available at ir.grupoclarin.com under the Financial Information section. I would now like to introduce today's speakers, Ms. Samantha Olivieri, Head of Investor Relations for the Q&A session. She will be joined by Mr. Ivan Acevedo, Controller; and Mr. Marcelo Boncagni, Audit Manager. It is now my pleasure to turn the call over to Ms. 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. On the current administration took office at the end of 2023, Argentina faced triple-digit inflation, negative net reserves, a significant relative price distortions. Since then, the government has implemented a stabilization plan focused on fiscal consolidation, monetary discipline and correcting relative prices, which have shown progress so far. However, risks persist and continue to require close monitoring. The fiscal anchor remains at the core of the stabilization program in the first 9 months of 2025. The national and public Sector accumulated a primary surplus equivalent to 1.3% of GDP. The administration's goal is to reach a 1.6% surplus in 2025 which is a commitment made with the IMF and would imply a second consecutive year with a positive fiscal balance, something not seen since 2008. Inflation continued to ease, moving from 211% in 2023 to 118% in 2024 and reaching 31.8% year-on-year as of September 2025. This inflation process has taken place despite the partial removal of currency controls and the introduction of a banded float system, which implied a higher official exchange rate. The banded float system continues to operate as a transitional framework towards a more market-based FX regime. Although the efficient exchange rate has remained within the established band. In the past few months, it has been particularly challenging to keep it below the upper limit. In addition to interventions by the Central Bank and the treasury, support from the U.S. Treasury, including the activation of a currency swap line played a central role in defending the band amidst heightened political uncertainty ahead of the October midterm elections. This episode took place after several months of gradual stabilization and economic recovery. According to the most economic activity index, the economy bottomed out in April 2024 with a 3.1% year-on-year decline. From that point onward, activity improved steadily, closing 2024 with an average contraction of 1.3%. However, the pace of the recovery has been uneven across sectors. Agriculture and energy have led the improvement while construction, manufacturing and mass consumption remain weak. In addition, despite increases in gross wages, disposable household income continues to be under pressure as real wage gains were insufficient to offset higher living costs. In the months leading up to the elections, however, negative expectations increased money demand fell sharply and investors increased their exposure to the U.S. dollar. According to Central Bank data, pre-election portfolio dealerization reached an amount equivalent to 40% of private sector M2, which is currency in circulation plus transactional deposits, exceeding $20 billion. This occurred despite higher pencil interest rates aimed at stabilizing money demand, leading to a flat economic activity and weaker private consumption, while country risk climbed above 1,000 basis points. As a result, Growth expectations were adjusted downwards. For 2025, GDP is now expected to grow close to 4% and reflecting the carryover from the rebound that began in the second half of 2024, but slightly below the early-year projections of around 5% according to the last REM survey. The outcome of the October midterm election marked a turning point. Voters sent a strong signal of support for the government effectively validating the direction of the economic plan. This result is critical as it provides the political support needed to advance a new package of structural reforms in Congress starting in December, including labor, tax and pension modernization all considered crucial for Argentina's economic growth. Market reaction was immediate and strongly positive. Country risk fell by nearly 400 basis points in a single day and currently stands at around 600 basis points. The official exchange rate also retreated to pre-election levels, and based on interest rates began to normalize towards more moderate and sustainable values. This improvement brings Argentina closer to regaining access to international debt markets a process further supported by the historic backing of the United States following the announcement of a 20 billion currency swap rescue package for the government and discussions around an additional 20 billion facility for sovereign debt repurchases. The current banded PE regime remains unchanged and continues to operate similarly to the previous GPEC framework. This scenario could help the Central Bank strengthen its international reserve precision, improving the macroeconomic outlook and supporting the continuity of the economic program. Having gone through the macro overview, please turn to Slide 6 for a quick review of some highlights for the first 9 months of 2025. With a positive trend in inflation and a degree of GDP and consumption recovery during second half of 2024, a trend that continued during 2025, advertising revenues continued to show a recovering trend on a year-over-year basis. increasing 17% and third quarter '25. The fourth consecutive interannual increase since fourth quarter '21, although the third quarter '24 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. We continue to consolidate our online content proposal. Thanks to corporate alliances as of September 2025. We have close to 726,300 total subs and 651,100 paid digital subs including com, 6.3% higher than September 2024. We had a marked improvement in EBITDA and margins, mainly the result of school textbook sales in second quarter '25 and higher circulation and advertising revenues, albeit compared to a weak 2024. The improvement in economic performance and the decrease in the inflation rate had a positive effect on EBITDA and working capital, allowing our subsidiary ACEA 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 9 months of 2025. The company has reflected the effects of the inflation adjustment adopted by Resolution 77 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. The Accordingly, the reported figures corresponding to 9 months and third quarter 2025 include the effects of the adoption of inflationary accounting in accordance with International Accounting Standard 29. For comparative purposes, the results were stated by inflation corresponding to September 2024, contain the effect of year-over-year inflation as of September 2025, which amounted to 31.8%. In this presentation, we included some figures in historical values for the sake of clarity. Revenues for the first 9 months of 2025 increased by 75.8% to HR 344.5 billion in nominal above average interannual inflation. Considering IAS adjustment, revenues increased by 21.6% from 305.4 billion to 371.5 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 year basis. EBITDA in nominal terms reached 71.1 billion from 16.7 billion and 76.2 billion from 23.6 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 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 4.7 billion from the 2024 negative figure of 14.1 billion. The increase in net income was mainly the result of higher EBITDA higher results from unconsolidated subsidiaries and higher other income and expenses net, partially offset by higher negative net financial results and higher income tax. The higher negative financial results is mainly explained by a negative inflation adjustment result compared to a positive result in 2024, generated by an active net monetary position. Higher negative results from transactions involving securities bonds and other placements and higher taxes and other financial charges. These effects were partially offset by lower interest expense on liabilities related to the decrease in debt fees and higher interest income. The higher income from unconsolidated subsidiaries is driven by positive results at TRISA which had registered losses in the same period of the previous year and higher positive results from Exponenciar, Canal Rural, Urbano Express partially offset by negative results of Papel Prensa due to a decrease in revenues. The higher other income and expenses net is the 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 the sale of 100% of the capital stock in the 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 third quarter increased by 45.5% to 123.1 billion, and EBITDA increased to 23.3 billion in nominal pesos. If we consider inflation adjustment, revenues increased by 8.6%, while EBITDA increased by 29% and mainly due to the higher EBITDA Broadcasting and Programming segment as a result of our recovery in advertising revenues, net of higher programming costs, partially offset by lower EBITDA and digital and printed publications segment. Net income for the period attributable to equity shareholders in real pesos was 8.6 billion. The increase in net income was mainly attributable to higher EBITDA lower negative net financial results and higher income from unconsolidated affiliates, partially offset by higher income tax. The lower negative financial results is explained by lower interest expenses as a result of the decrease in debt higher interest income and positive FX results, partially offset by higher negative inflation adjustment as a result of the higher active monetary position. Slide 9, please. As the graphs show, revenues increased 8.6% in real terms, while costs increased by 4.8%, resulting in an expansion of EBITDA margin in the third quarter of 2025. The increase in EBITDA is mainly driven by higher advertising revenues, 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 of payroll and programming. Advertising is typically tied to the performance of Argentina's economy. Advertisers ad spend budget is normally proved at the beginning of each year. the challenging macro scenario during 2024 with a drastic fall of economic activity and the acceleration of inflation side effects of the policies implemented by the new administration to correct the inherited economic imbalances and the change in the national governance policy with respect to efficient advertising resulted in advertising revenues decreasing 40% in real terms in the first half of 2024, while lower into annual inflation rate during the fourth quarter and the degree of economic activity recovery resulted in a recovery in the advertising market, a trend that has continued in 2025. Advertising revenues for the third quarter '25 increased 17.2% in real terms, a fourth 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 payable revenues include traditional newspaper and magazine sales, optional products and book sales and digital subscription available among others. The shift in readers behavior and corporate subs translated and paying digital subs increasing suddenly since the payroll was launched. The pricing policy for traditional circulation has been to increase newspaper prices along and even above inflation, while coffee sold have decreased 16.4% year-on-year in third quarter '25. In addition, second quarter 2025 includes higher revenues from school textbook government bidding. Programming stance include the sale of our pay TV segments 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 of the pay TV operators and their ability to increase the price for their service. Thanks to the higher price increases for cable TV services during 2024 and 2025 and the renegotiation of some programming agreements by the end of 2024 and programming revenues increased above inflation in this quarter on a year-over-year basis. Please move on to Slide 11, where we will 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 rock materials, fees for services, programming, coproduction and other costs related to production aired by Artear, maintenance costs and distribution costs of editorial products. As increases to compensate for a loss of purchasing power of salaries following the higher inflation registered during first quarter '24 were granted with today during the remainder of the year. Labor costs increased above inflation during the 9 months of 2025, mainly the result of the carry-on effect and the deceleration of the inflation rate. So do fee for services, although part are intercompany fees, which are eliminated in consolidation. Printing another barrier of 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 by segment shortly, but first, let's review the debt financial position as for Slide 12. The total debt as of September 2025 decreased 46.3% to ARS 19.6 billion. The improvement in operating performance and the lower inflation rate have allowed Area to cancel Bank overdrafts and short-term debt incurred in 2024 to subscribe real bond for the settlement of commercial debt in 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 lower debt at Radio Mitre. These effects were partially offset by higher debt at Carburando and the effect of the higher increase of the exchange rate relative to inflation on foreign currency debt. Approximately 89% of our total debt were 12.6 million and 53.6% of cash and cash equivalents or $33.1 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 will begin with Broadcasting and Programming division on Slide 14. Revenues increased by 18.2% to 67.8 billion in constant in third quarter '25 compared to 57.4 billion in third 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 to the operators to their clients and the renegotiation of some programming agreements, which impacted the revenues on the sales of the signals produced and distributed by our subsidiary out of debt. Cost of sales increased by 15.5% to 33.9 billion. This increase was mainly due to higher programming costs as the TV lineup was renewed with a more appealing content. Selling and administrative expenses decreased by 3.7%. This is mainly attributable to lower contingencies, lower salaries and lower fees for services in real terms. As a result, during this period, adjusted EBITDA increased significantly, reaching 20.4 billion and margin increased to 30% from the third quarter 2014 figure of 24.4%. The Prime time for Channel 13 audience share decreased 13.5%, while total time audience share decreased by 11.3%, mainly the result of an increase in viewership, which was capitalized by our competitor, Telefe mainly from Argentina soccer team matches. Our audience performance has allowed us to reach 31.8% of advertising market share. Now let's move on to the digital and printed publications on the next slide. Total revenues decreased by 2.8% in real terms to 52.2 billion in third quarter 2 mainly as a result of lower circulation revenues driven by books and other optional product sales lower traditional newspaper circulation and lower ARPU price increases applied during this quarter following the steep price increases carried out during the second half of 2024, partially offset by higher advertising 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 2024 to 32,800 average daily copies, while payable subs reached 651.1 thousand, as of the third quarter of '25, 6.3% higher than third quarter '24, driven by corporate subs. Cost of sales decreased by 3.3% to 28.1 billion in third quarter '25 compared to 29 billion in third quarter '24, mainly the result of lower variable costs in printing and other costs of editorial products related to optional products and the decrease in traditional newspaper circulation. Partially offset by higher salaries, social security contributions and severance payments, higher logistics costs and higher leases. Selling and administrative expenses increased by 5.4% to MXN 21 billion third quarter '25, mainly due to higher advertising and promotion expenses related to [ Vero Clarin's ] 80th anniversary. Higher bad debt charges and higher salaries, social security and severance payments partially offset by lower distribution costs. Regarding our other segment, turn to Slide 16. During third quarter '25, net sales in real terms increased by 15.8% to MXN 8.7 billion. This increase was mainly the result of corporate fees which are eliminated in consolidation. EBITDA resulted in MXN 237.4 million. Gestion 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 year, has been increasing the participation of third-party revenues and through the revenues, generating new sources of income. It is also worth mentioning that Gestion Compartida has been expanding its services finding growth opportunities through joint ventures such as Quanix, which is HR technology for Staff Management and Hiberus Argentina, IT consulting, cloud services, SAP consulting, software development, 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 total float is approximately 20%. Regarding the current composition of our float, as shown on the slide, approximately 19% is represented by GDSs, and 81% is local float. That concludes our comments. We will now take your questions. Nick, we are ready for questions, please.

[Operator Instructions]. It appears we have no questions at this time. I would like to return the program back to Ms. Olivieri for closing remarks.

Thank you, Nick. 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 in the future. I look forward to speaking with you about the full year 2025 results. Have a great day.

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