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Edited Transcript of GCLA.BA earnings conference call or presentation 24-May-19 3:00pm GMT

Q1 2019 Grupo Clarin SA Earnings Call

Buenos Aires Jun 25, 2019 (Thomson StreetEvents) -- Edited Transcript of Grupo Clarin SA earnings conference call or presentation Friday, May 24, 2019 at 3:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Oscar Agustín Medina Manson

Grupo Clarín S.A. - Head of IR

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Presentation

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Operator [1]

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Good morning. My name is Priscilla, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Grupo Clarín's First Quarter 2019 Earnings Conference Call. (Operator Instructions) This call is for investors and analysts only. Therefore, questions from the media will not be taken. If you are a member of the media and have questions, please contact i-advize following the call.

I will now introduce our speakers on behalf of Grupo Clarín. We have Mr. Agustín Medina Manson, Head of Investor Relations; and additionally, Mr. Iván Acevedo, Controller. Mr. Marcelo Boncagni, Audit Manager, will also be available for today's Q&A session. The team will be discussing the results as per the earnings release distributed yesterday.

If you have not received the report or need any assistance during today's call, please contact i-advize in New York at (212) 406-3695 or the company in Buenos Aires at +54-11-4309-7215. Clarín has also posted a webcast presentation to follow this conference call. This presentation can be found at www.grupoclarin.com/ir.

Comments made by management today 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.

These 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. We ask that you refer to the disclaimer in the earnings report or presentation for additional information regarding forward-looking statements.

It is now my pleasure to turn the call over to Mr. Agustín for his presentation. Please go ahead, sir.

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Oscar Agustín Medina Manson, Grupo Clarín S.A. - Head of IR [2]

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Thank you, operator. Good morning. Thank you for joining us. It is a pleasure to present the results today. 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. Having gone through the agenda, I will now go over a brief macro description.

On Page 4, as we mentioned in the previous quarter, 2018 elapsed in a complex macroeconomic environment that resulted in a sharp depreciation of the peso, high levels of inflation and a depreciation of the economic activity. In such context, a new fiscal and monetary model was adopted and an extension agreement will accelerate into the IMF.

During the first quarter of 2019, the fiscal and monetary goals of the program agreed upon with the IMF were strictly achieved. However, the results in terms of exchange rate, stabilization and inflation reduction were worse than which was expected. CPI rose 11.8% in the first quarter of 2019 and 51.8% year-over-year, mainly due to the increase in energy and transport tariff that continues to be required to achieve fiscal consolidation and the pass-through effect from the strong 2018 devaluation to prices.

On the FX market side, the nominal exchange rate closed the first quarter of 2019 at ARS 43.4 per U.S. dollar, increasing 14.7% and 115% compared to the previous quarter and the same period of 2018, respectively. Consequently, the Central Bank of Argentina was forced to reconsider its monetary policy and fix the reference rate at levels above 60%, increasing from 59.3% at the end of December 2018 to 68.2% at the end of March of 2019.

It is also important to mention that as a result of the exchange rate and financial volatility on April 29, 2019, the Central Bank announced new measures in order to reinforce its monetary policy model.

The main change are: number one, the Central Bank will be able to intervene within the nonintervention zone, a monetary zone that had been previously defined at the range of -- from ARS 39.8 to ARS 51.5 in which the currency could float without intervention of the Central Bank. The nonintervention zone is currently known as the reference zone. And second, at the top of the nonintervention zone, the Central Bank will be able to sell up to USD 250 million per day or even more if it believes it is necessary.

During the first quarter of 2019, GDP remained at the same levels of the previous quarter and decreased 5.7% compared to the same period of 2018, reflecting the recession of the activity and the labor market. In this context, it is expected to see a gradual growth recovery from the second quarter of the year, mainly due to the fact that the agro sector will grow strongly as a result of the growth reversion effect on the harvest.

The expectation for 2019 continues to show many uncertainties both on the economic and political front. Beyond the uncertainty derived from the electoral year, the main concern is whether the current administration will be able to normalize the main macroeconomic indicators and reduce the exchange rate volatility, a condition that is necessary to reduce the high levels of inflation.

Having gone through the macro overview, let me continue with the company performance. Please turn to Slide 6 so that we may briefly review some of the Grupo Clarín financial highlights for the first quarter 2019 period. But first, to understand some consideration about the financial statement accounting, it is important to highlight that Argentina has crossed the threshold of 100% inflation accumulated during the last 3-year period. IAS 29, Financial Reporting in Hyperinflationary Economies, should be applied by entities with a functional currency of the Argentine pesos for accounting periods ending on or after July 1, 2018, and it should be applied as if the economy had always been hyperinflationary.

Having said that, revenues grew by 3% to ARS 3.1 billion in historical pesos, but with the IAS adjustment, revenue decreased by 18% from ARS 5 billion to ARS 4.1 billion in real pesos. EBITDA in nominal terms increased by 122% to ARS 231 million mainly driven by a better performance in Broadcasting and Programming segment and in the Printing and Publishing segment. Taking into account the effect of inflation, EBITDA decreased by 5%. Net income for the period attributable to equity shareholders in real pesos was negative and amounted to ARS 221 million.

On Page 7, we show that the impact of inflation accounting generate lower levels of revenues in real terms, but costs were reduced more than revenues, so we generated an EBITDA margin expansion. The company has been taking actions to gain operational efficiency and manage its cost structure, and these actions have positively impact in EBITDA margin.

We will discuss the breakdown by segment shortly, but first, I would like to review the debt financial position. As per Slide 8, as of March 2019, we reported a total financial debt of approximately ARS 1.4 billion. With a negative net debt as of March 2019, the company had more cash than debt. The total debt in this quarter increased to ARS 1.4 billion due to the peso depreciation, and it was partially offset by lower amount of debt both in pesos and in dollar-denominated debt.

Approximately 43% of our total debt are in U.S. dollars, and 24% of the cash and equivalent are in U.S. dollars. Overall, we continue to show a very healthy debt profile with an average debt cost approximately of 6% in dollar and around [60%] in pesos and an average maturity of around 1 year.

Moving on to the segment breakdown. We'll begin with the Broadcasting and Programming division on Slide 10. As we mentioned in our previous call, the economic downturn impacted our company across all business segments, and this segment performed well considering the current macroeconomic conditions.

Revenues decreased by 14% to ARS 1,638 million compared to the ARS 1,956 million (sic) [ARS 1,916 million] in the first quarter 2018. This was due to lower advertising revenues in constant pesos in Channel 13 and in our radio businesses. Cost of sales decreased by 15% to ARS 1 billion. This decrease was mainly caused by higher effect of restatement in salaries and production cost for first quarter '18 versus first quarter 2019.

Selling and administrative expenses decreased by 17% to ARS 368 million in the first quarter 2019 compared to ARS 442 million in the first quarter 2018. This decline was primarily the result of the greater effect of the inflation in salaries, marketing expenses and fees for services in order -- for first quarter 2018 versus the first quarter 2019 in order to be expressed in homogeneous currency as of March 2019. During the period, adjusted EBITDA totaled ARS 231 million, and EBITDA margin reached 14%.

On Slide 11 in terms of audience shares on Channel 13, the prime time audience decreased by 5%, and total time audience stood flat. In terms of advertising share, this segment stood at 36%, a 7% decrease compared to the first quarter 2018.

Now let's move on to Printing and Publishing on the next slide. Total revenues decreased by 18% to ARS 2 billion in the first quarter 2019 mainly as a result of lower advertising revenues in real terms. Inflation was close to 51% from first quarter 2018 to first quarter 2019, while advertising revenues in current pesos increased by approximately 9%.

Total adjusted EBITDA for the quarter was positive in ARS 46 million. This increase is in part the result of the cost reduction plan launched in 2016. We continue stabilizing our operation and deploying strategic action with the expectation of improving the company's long-term sustainability.

Cost of sales decreased by 26% to ARS 1.2 billion in the first quarter '19 compared with ARS 1.6 billion of last year. The decrease was mainly the result of lower severance payment, salaries and printing costs caused by the greater effect of the restatement in the first quarter 2019. Selling and administrative expenses decreased by 14% to ARS 886 million, and this was primarily the result of lower salaries and fee for services due to the adjustment of the inflation.

Please turn to Slide 13 where we show the key ratio for this segment. Comparing quarters, total circulation stood at 228,000 average daily copies. This figure includes approximately 62,000 subscribers -- digital subscribers, while printed circulation share stood at 39%. Printed advertising share reached 56%. Regarding the Digital Content and Others segment on Slide 14, during this period, net sales decreased by 17% to ARS 670 million and EBITDA result in negative in ARS 35 million.

To conclude, I will review the current capital structure on Slide 16. As of today, the shareholder composition is 80% owned by the Argentine shareholders and a public float of approximately 20%. Regarding the composition of our float, currently, as shown in the slide, approximately 44% is international and 56% local.

That concludes our comments. We'll be pleased to take your questions. Operator, we are ready for questions, please.

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Operator [3]

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(Operator Instructions) And I am showing that we have no questions at this time. I'll turn the call back to our presenters for any closing remarks today.

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Oscar Agustín Medina Manson, Grupo Clarín S.A. - Head of IR [4]

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Thank you very much. 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 further questions. I look forward to speaking with you again next quarter regarding the result of the second quarter 2019. Thank you very much. Have a good day and a better weekend. Bye-bye.

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Operator [5]

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This does conclude today's program. Thank you for your participation. You may disconnect at any time.