Annual Report 2010
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ANNUAL REPORT 2010 Disclaimer Some of the information in this Annual Report (the “Annual Report”) may contain projections or other forward-looking statements regarding future events or the future financial performance of Grupo Clarín. You can identify forward-looking statements by terms such as ”expect”, ”believe”, “anticipate”, “estimate”, “intend”, ”will”, “could”, “may” or ”might” the negative of such terms or other similar expressions. These statements are only predictions and actual events or results may differ materially. Grupo Clarín does not intend to or undertake any obligation to update these statements to reflect events and circumstances occurring after the date hereof or to reflect the occurrence of unanticipated events. Many factors could cause the actual results to differ materially from those contained in Grupo Clarín’s projections or forward-looking statements, including, among others, general economic conditions, Grupo Clarín’s competitive environment, risks associated with operating in Argentina, a rapid technological and market change, and other factors specifically related to Grupo Clarín and its operations. The Annual Report and certain boxes and charts that include highlighted information for illustrative purposes throughout this publication, include financial information as of and for the fiscal years ended December 31, 2010 and 2009, which was extracted from the Consolidated and the Parent Only Financial Statements as of December 31, 2010, presented on a comparative basis, and their related notes. The Annual Report and the Highlights should be read in conjunction with such financial statements and related notes, the report of Grupo Clarín’s independent accountants, Price Waterhouse & Co. S.R.L., Buenos Aires, Argentina (a member firm of PriceWaterhouseCoopers) relating to such financial statements, and the report of Grupo Clarín’s Supervisory Committee. 03 Financial and Operational Highlights 04 Macroeconomic Environment 05 Perspectives for the Upcoming Year 06 The Year 2010 and the Media Sector in Argentina 08 Grupo Clarín. Origin, Evolution and Profile 10 Grupo Clarín and its Business Segments in 2010 1 12 CABLE TELEVISION & INTERNET ACCESS 15 Programming, Cable Television and Internet Services 17 Commercialization and Customer Service 17 Strategy 2 18 PRINTING & PUBLISHING 20 Arte Gráfico Editorial Argentino 20 Diario Clarín 23 Other Newspapers 23 Magazines 25 Ferias y Exposiciones Argentinas 3 26 BROADCASTING & PROGRAMMING 28 Artear 31 Radio Mitre 4 32 DIGITAL CONTENT & OTHERS 34 Digital Content 37 Other Services 5 38 CORPORATE GOVERNANCE, ORGANIZATION AND INTERNAL CONTROL SYSTEM 41 Stock Information and Shareholder Structure 6 42 CORPORATE SOCIAL RESPONSIBILITY 43 Our Commitment 44 People’s Voices 45 Social and Sustainability Coverage 45 Promoting Involvement 46 Community Engagement and Social Advertising 47 Fostering Education and Culture 48 Media Literacy and Young People 48 Excellence in Journalism 49 Our People 53 Environment 58 Risk Factors 59 Business Projections and Planning 7 ANNUAL 60 FINANCIAL STATEMENTS AS OF REPORT 2010 DECEMBER 31, 2010 FINANCIAL HIGHLIGHTS (In millions of Ps.) 2010 2009 YoY Net Sales 7,632.0 6,678.8 14.3% Adjusted EBITDA(1) 2,351.8 1,985.7 18.4% Adjusted EBITDA Margin(2) 30.8% 29.7% 3.6% Net Income 533.7 290.1 83.9% (1) We define Adjusted EBITDA as net sales minus cost of sales (excluding depreciation and amortization) and selling and administrative expenses (excluding depreciation and amortization). We believe that Adjusted EBITDA is a meaningful measure of our performance. It is commonly used to analyze and compare media companies on the basis of operating performance, leverage and liquidity. Nonetheless, Adjusted EBITDA is not a measure of net income or cash flow from operations and should not be considered as an alternative to net income, an indication of our financial performance, an alternative to cash flow from operating activities or a measure of liquidity. Because Adjusted EBITDA is not an Argentine GAAP measure, other companies may compute Adjusted EBITDA in a different manner. Therefore, Adjusted EBITDA as reported by other companies may not be comparable to Adjusted EBITDA as we report it. (2) We define Adjusted EBITDA Margin as Adjusted EBITDA over Net Sales. OPERATING RESULTS (In millions of Ps.) 2010 2009 YoY Total Consolidated Subscribers(1)(2) 3,357.9 3,193.0 5.2% Total Internet Subscribers(2) 1,128.2 988.0 14.2% Circulation(3) 360.8 395.1 (8.7)% Audience Share %(4) Prime Time 42.1% 40.0% 5.4% Total Time 31.0% 29.7% 4.2% (1) Figures in thousands. (2) Total subscribers consolidated following the same consolidation methods used in the financial statements as of each year end. (3) Average number of copies according to IVC (including Diario Clarín and Olé). (4) Share of broadcast TV audience according to IBOPE for AMBA. PrimeTime is defined as Monday through Friday from 8 pm to 12 am. Total Time is defined as Monday through Sunday from 12 pm to 12 am. ADJUSTED EBITDA (In millions of Ps.) 2010 2009 YoY Cable TV and Internet access 1,829.5 1,517.8 20.5% Printing and Publishing 303.4 296.6 2.3% Broadcasting and Programming 211.5 162.2 30.4% Digital Content and Others 7.5 9.1 (17.5)% Subtotal 2,351.8 1,985.7 18.4% Eliminations - - NA Total 2,351.8 1,985.7 18.4% 02 03 MACROECONOMIC ENVIRONMENT Like most other emerging countries, the Argentine have risen to 25% -a record high in the last eight economy went through a recovery period in 2010. years- and approximately ten points above 2009. Such performance was driven by the conditions Consequently, in 2010 the Argentine economy prevailing in the external arena, along with the generated more than 3.5 percentage points per expansionist bias of the economic policy and the point of growth (this ratio is substantially higher favorable weather conditions for the agricultural than that of its neighboring countries). sector on the domestic front. The three pillars that supported the economic However, unlike other emerging countries, the recovery after the 2001-2002 crisis deteriorated strong expansion of the local productive activity in the year under analysis. The nominal exchange was paired with an inflationary upsurge that rate, which operates as an inflation buffer prevented the country from fully capitalizing on together with the virtually frozen utility tariff the proceeds from such growth and from improving rates, did depreciate with respect to the US dollar their distribution. throughout the year, but at a substantially lower rate than the price increases (less than 5% vs. In 2010, the Argentine economy experienced 25%). growth with inflation and currency appreciation. This fact, coupled with the currency board strategy In addition to generating an accelerated loss of implemented in order to moderate the inflationary competitiveness, this rapid adjustment of the real impact of the strong drive generated by public exchange rate, paired with the economic activity, policies, resulted in an unprecedented slowdown exacerbated the increase in the value of imports. of all three pillars that supported the recovery In 2010, imports increased by 46%, doubling the process after the 2001-2002 crisis. increase in exports. These dynamics deteriorated the balance of trade surplus, which showed a In addition to these two conditioning factors, the significant decrease of almost 30% (from USD16.9 Argentine economy is operating under certain billion to USD12 billion in absolute values). The disturbing factors, such as, increased primarization, year-on-year decrease in capital flight from the strong distortion in relative prices and a shortage private sector (30% compared to 2009, but still of reproductive investments (noticeable mainly in above USD10 billion/year) partially offset the the capital depletion of key strategic sectors). genuine generation of foreign currency. Therefore, in spite of its growth cycle (of Thus, deterioration on the fiscal front was more approximately 70% since 2002), Argentina has significant than on the external front. Without yet to show any predictability in its medium-term counting revenue distributions received from the performance or clear progress in its development. BCRA and revenues of the ANSES derived from Poverty, which has remained almost unchanged the ownership government-issued securities, in since early 2007 and which, according to private 2010 the national public sector recorded a primary estimates, still affects 9 million Argentine people, deficit, that is, a deficit before payment of interest clearly reflects the latter. on its indebtedness. Notably, this result occurred in spite of the application of tax pressure that, According to private sources, Argentina’s real GDP in consolidated terms (national, provincial and is estimated to have increased by approximately municipal level), already represents an historical 8% (recovering by far the three percentage record high (~32% of GDP). points lost in 2009). Inflation is estimated to Perspectives for the Upcoming Year The world currently offers Argentina, as a net exporter of food products, with an undisputable opportunity. The current terms for exchange are the best in the last fifty years and are expected to continue to be favorable in the coming years. Leveraged by this extraordinary external scenario, in 2011 the Argentine economy could again grow well above its historical average, albeit at a lower rate than in 2010. In contrast with the lower expected rate of GDP growth, inflation is expected to exceed the rate registered in 2010. The agricultural sector and the car industry are bound to continue to be the main pillars of growth. In fact, even though the crop harvest volume in general and the soybean harvest volume in particular are expected to be lower than in 2010 due to the effect of La Niña, the high prices of agricultural commodities would more than offset such fall, contributing to renewed growth in the value of exports in the coming year. This would certainly lead to an increased current account surplus and to higher fiscal revenues from export duties.