Earnings Call: Q4 2023

Feb 24, 2024

Good morning to you all. I want to thank you for your presence today in this conference. We will be focused on presenting the results of Grupo Argos for the last quarter of 2023. In this phase, we have Jorge Mario Velásquez, President of Grupo Argos, Alejandro Piedrahita, Vice President of Strategy and Corporate Finances for Grupo Argos, Rafael Orjuela, Vice President of Legal Matters for Grupo Argos, Mauricio Agudelo, President of Odinsa, Maria Clara Aristizábal, President of the Urban Development Business, Pablo Arroyave, Vice President of Corporate Finances of Odinsa, and Andrés Bejarano, President of Facia. I want to remind you all that on the website you can find all the information for this quarter, where you will find the presentations that will be following during this teleconference. For downloading it, you can access menu, financial information, afterwards, in the section reports. In addition, we are also transmitting this conference via space of X. I want to move on to slide number 3, and I want to give the word to Jorge Mario Velásquez, President of Grupo Argos. Thank you, Juan Esteban. All the investors, shareholders, analysts, and friends that are with us today in this conference, it is a pleasure having you all, as well as the administration team for Grupo Argos and its businesses. Good day to you all, and it is great being able to reconnect with you all in order to start the report, not just for the last quarter 2023, but also how was the closure of the year of 2023. I need to say that the financial results were outstanding for Grupo Argos for this year. Product of the performance of all our investments in the separate financial results, accumulated revenues for the year closing COP 1.4 trillion. This means a growth of 83%. The EBITDA closed in COP 945 billion. That is 99% over last year. Net profit reached COP 789 billion, which doubles the closure of 2022, meaning right as the previous year. In this train of thought, the administration will propose to the shareholder assembly a dividend of COP 636 per share, consolidating an annual growth rate of 13% for this dividend in the last five years. Grupo Argos closed 2023 with consolidated revenues of COP 22.6 trillion and an EBITDA of COP 5.5 trillion, growing 6% and 5% respectively compared with the previous year. Even bearing in mind that due to the creation of the airport and roads verticals, the main Odinsa assets are not consolidated line by line in the financial results. This is especially notorious for the impact that OPAIN has. From its side, the net profit closed in COP 1.5 trillion. This means a growth of 1%, and the controller net profit had a growth of COP 960 billion, means a growth of 4%. 2023 was a year that, besides some milestones that we had as a business, I would like to make a brief recap. During February, Grupo Argos announced the start of its repurchase of shares program, which was executed throughout the year, added to the programs approved by the shareholder assembly of Cementos Argos, Celsia, and Grupo Argos. This represents an amount of COP 1 trillion, and that up to date, more than COP 200 billion have been executed. Celsia announced its reorganization of its presence in Central America by disinvesting some assets in such region. This operation allowed to improve its financial flexibility. It allowed to strengthen the liquidity position and reduce the net indebtedness, reaching a net leveraging indicator over EBITDA of 2.3 times, which is especially important in a moment where we face high interest rates. Afterwards, the 16th of June, we announced the signature of the framework agreement that established the terms of the exchange of Grupo Argos' participation in the food business of Grupo Nutresa by shares of Grupo Sura and their participation in the shares of Grupo Argos in Grupo Sura. This transaction, by which Grupo Argos exchanges our 9.9% of participation in Grupo Nutresa for a portfolio in Grupo Sura shares, implies the disinvestment of a mature company under some exchange terms that are reasonable for all the parts, and in a coherent way, under the vision that the company has traced. The operation allows Grupo Argos to receive an adequate value for its participation in Grupo Nutresa without being subject to pro-ratings, where besides, the totality of the shareholders of Nutresa count and will count with the flexibility to choose between the option that best suits their preferences. The 29th of June, Odinsa and Macquarie Asset Management placed in operation a new investment platform for airport infrastructure, which includes assets for more than COP 1.3 trillion. This is a milestone that represents the tangible materialization of its strategy as infrastructure asset manager and the recognition that this generates between world-class players due to its participation and capacity in the infrastructure business. The 18th of August, Celsia announced its entrance into Peru with the acquisition of Caravelí Wind Generation Project, which is located in Arequipa with 218 megawatts of install capacity. Our energy business will seek, trying to use the attractive natural resources for renewable energy initiatives that this country offers. The 7th of September, Cementos Argos announced a combination agreement of the assets between Argos USA and Summit Materials. This is a transformational milestone that strengthens the position of Cementos Argos as a relevant player in the industry of the first economy of the world. In January this year, the transaction was successfully completed, creating a leader platform in terms of construction materials with a national scale in the United States and with a company value that might be around $9 billion. From another side, at the close of 2023 from Grupo Argos, we've reached the reacquisition of more than 7 million shares. These efforts, joined with the announcement sessions during the year and the financial results were reflected with a higher appetite and with evaluation of the ordinary and preferential shares of 50% and 69% respectively since the beginning of the repurchase program. Last 6th of February, Grupo Argos, as the rest of the parts of the framework agreement, reached with success the first share exchange. The company swapped the totality of the shares owning Grupo Nutresa for 36 million ordinary shares of Grupo Sura that were owned by JGDB, Nutresa and IHC, and 14 million ordinary shares from the portfolio society owned by Nutresa. From its side, February 16, following the framework agreement and following and complying with what has been stated in decree 079 of 2024, we make a request to the financial superintendency for a 23.1 reacquisition of the public offer that will be by Grupo Nutresa, that will be done jointly with destination to all the shareholders of Grupo Nutresa. Once this public offer has ended for the share acquisition of Grupo Nutresa, we will have a second exchange by which the parties will end this operation that has been stated in this framework agreement. Through 2023, the ordinary shares of Grupo Argos experimented an appraisal of 31%, while the preferential shares increased at 33%. In a similar manner, the ordinary and preferential shares of Argos, Celsia, and Cementos Argos increased 70% and 77%, respectively, and Celsia had an increase of 6%. This trend was kept in the first months of 2024. Since the beginning of this year till the end of February, all our shares recorded a two-digit growth. Ordinary share of Grupo Argos had an evaluation of 11% in preferential shares of 15%. In the same period, ordinary shares of Grupo Argos grew an 11% and preferential shares grew at 28%, and Celsia shares had an increase of 27%. Even though we must celebrate the performance of our shares last year, we want to reiterate that the value of our shares is not fully reflecting its intrinsic potential. Because of this, we will keep on making the effort of driving all those initiatives that will reduce that gap between the real value and the price of the shares. Proof of this is that Grupo Argos is being traded on the market close to half of the value of what we have in our ledgers, while this year, this value has been exceeded at the end of each exercise. Because of this, besides the transactions that we just have gone over and which objective is to generate value for our shareholders, we keep on focusing on operational excellency, prioritizing in a deleveraging policy. In 2023, the consolidated net indebtedness closed in COP 10.8 trillion, which represents a net debt indicated to EBITDA of 2 times. Now, we want to invite you to move on to slide 7 in order to go over some of the operational results that we had in our different businesses. In 2023, the income or the revenue for our cement business reached a total of COP 12.7 trillion, which represented growth of 9%, while the EBITDA reached COP 2.6 trillion with a positive variation of 22% compared with 2022. As a result, the controller net profit for Cementos Argos was COP 320 billion. This is an expansion of 125% year-after-year, while the leveraging index measured by the net debt relation towards EBITDA closed in 2.6 times, which is the lowest one in 10 years. This indicator will keep on dropping during 2024, reaching less than 2.5 times, and this is the cash that has been received due to the Summit Materials transaction. With the closure of the combination transaction between Argos USA and Summit Materials, Cementos Argos will be strengthened in order to consolidate its position and empower its growth, not just in the U.S., but also in Colombia, Central America, and the Caribbean. Strengthening, besides this, its export capacities towards the U.S. and other geographies. We also need to mention that the economic results of this transaction will be reflected in the financial results of 2024. During the quarter, Cementos Argos dispatched 3.8 million tons of cement. This is 2% less than the same period last year. Revenues dropped 7% year-over-year, while the EBITDA grew at 5%, which was translated in a quarter which has better EBITDA margins, which reached a 22%. During 2023, the company kept its dispatch level in the U.S., despite the spike of a lower demand in the industry. We had larger dispatches, the majority in countries in Central America and the Caribbean, and increased the exported cement from Cartagena, compensating the drop that we had in the residential segment in Colombia. The U.S. operations experimented an improvement in their margins. EBITDA reached $365 million, growing at 46%. From its side, the EBITDA margin had an expansion of 540 basis points, reaching a 21.4%, representing the largest figure for Argos in this country in all its history. The Colombian regional revenues reached COP 3 trillion, 9% over what we had in 2022, while the export volumes grew at 12% year-over-year, reaching 1.4 million tons. In Central America and the Caribbean, we closed with revenues of $544 million and an EBITDA that was placed in $124 million, which is a reasonably stable figure compared with the previous year. As you might see, the cement business results in all its regionals are positive, and the Summit combination offers a broad range of opportunities, not just only for Cementos Argos, but also for its shareholders. Now, I want to invite you to move on to the energy business results found on the upcoming slide. During fourth quarter 2023, Celsia closed the sale of a part of the generation assets in Panama, Costa Rica, and El Salen. This transaction allowed Celsia receiving $194 million for the sale of the shares to strengthen its liquidity position, improving the profitability of the invested capital in 284 basis points, and reducing $198 million, the consolidated debt that this asset had. This deconsolidation is because of this investment, and this consolidation we carried out. The company closed 2023 being the fourth electric energy generator in Colombia, with a mainly water portfolio, with a thermal and efficient support and consolidating its leadership in the energy transaction, not just in the country, but expanding towards the region. The total install capacity of the company reached something less than 2,000 megawatts, with 70% originated parting from renewables sources through Celsia, which is the solar generation platform that we have in association with Cubico. Celsia reached a capacity of 300 megawatts of solar energy in Colombia. At the same time, the company is in the process of developing additional solar farms that will add an approximate capacity of 400 megawatts. We have the conviction of keep expanding our operations. Our generation operations in the country, and we hope to advance in the development of this additional capacity that Colombia requires, supporting clean energies. Celsia revenues in 2023 reached COP 6.2 trillion. This is an 11% increase compared with last year, and the consolidated EBITDA added COP 1.8 trillion, representing a growth of 4%. The consolidated net profit closed the year in COP 349 billion, being impacted by an increase in the financial cost and due to the volatile exchange rate. The total yearly EBITDA for Celsia, if we would add all of the investment platforms that are not consolidated in the financial results, would be equal to a sum of COP 2.3 trillion. The commercial representation with which Celsia counts in the thermal plants of Meriléctrica and Tesorito were main characters during 2023, supporting the Colombian electric matrix under the El Niño phenomenon. This last one has had an availability of 98% over international standards, offering reliability to the electric system at the most critical moments. I want to make a footnote to reinforce this message, that not just solar platforms don't just consolidate, but Tesorito effect is not consolidated either in the financial results. The EBITDA generated by this operation, that's important, in cases such as El Niño phenomenon, which is not consolidated in the financial results of Celsia. Let me move on to Odinsa. In 2023, Odinsa kept contributing to the road infrastructure development and airport infrastructure development together with Macquarie Asset Management, who is the largest infrastructure asset manager of the world. As a result of the cash that was received by Odinsa in the consolidation of the airport platforms during 2023, made the payment of the bonds issued in 2020 for a value of COP 280 billion, advancing in the debt reduction and improving its capital structure in order to drive those projects that are in structuring phase that are mainly found in Colombia right now. In relation with the actual state of our road concessions, it's relevant to point out that after the increase of the tolls that was decreed by the national government during January 2024, our concessions such as Autopista del Café y Túnel de Oriente-Urra, adjusted its rate based on the consumer price index for 2023, and there's no increase still pending. From its side, Malla Vial del Meta and Pacífico 2 updated their rates based on the consumer price index of 2022, being important to highlight that ANI or the ANI, has been complying punctually with its contractual commitments in respect with the flash project. Moving on to the operational results of the company that you can find on slide number 12. The road platform closed the quarter with an average daily traffic of 110,000 vehicles, slightly under what was registered in the same period last year. Looking at the totality of the year, we closed with a traffic that reached more than 38 million vehicles, stable compared with the record we had in previous year. Even with the reductions presented in the Autopista del Café concessions, that were a product of the temporary closure of El Alambrado bridge, which Odinsa placed in operation, a new bridge, in record time in order to reactivate the connectivity of the central part of the country with the northern part of the country. In airports, which figures are detailed on slide number 13, traffic during the quarter reached 12.8 million, growing 16%, making the platform to close with 46 million passengers that were mobilized, from which 40 million correspond to International Airport of El Dorado, which is a record figure for an asset that is operating at full capacity. Odinsa keeps betting on a development model, which thanks to the association of public and private capital, has been possible to contribute to the closing down the gap, the infrastructure gap that exists in Colombia, essential for sponsoring competitiveness, development, and especially social inclusion. We shall insist that in order to materialize the investments that we have under structuring right now, it is fundamental to keep the clear rules and for the institutional scaffolding can offer adequate conditions in order to keep on growing capital and strengthening the legal stability of the concession model. This is also key for the electric sector. I want to move on to discuss the results of Pactia. At real estate business, the effective gross revenue was of a growth of 6%, and the EBITDA for the quarter was COP 60 billion with a growth of 16%. After adjusting the disinvestment, the effective gross revenue and EBITDA grew 5% and 12% respectively. In terms of the same assets for the accumulated year, the operational net revenue and EBITDA closed with growth of 16% and 19% compared with 2022. In total, contracts were renewed for 15,000 square meters, and we placed new contracts for 4,000 square meters, mainly during the fourth quarter of 2023 at the end of the period. The fund closed with an occupation of the non-hotel portfolio of 97.2%, this is a reduction of 9 basis points compared with the same period 2022, and an increase of 48 basis points versus the previous quarter. The sectors that presented the largest growth in terms of revenues for the last quarter of 2022, were offices and commercial spaces with increases of 13% and 16% respectively. These results were driven by the contractual adjustments of the canon that we had due to a larger occupation in the case of offices. The fund closed the period with a record occupation of 99.4%, an astounding figure considering the effects of the pandemic in these potential modalities of labor. The urban development business for mid-side closed the year with a net cash flow of COP 105 billion, which represents 76% over the average since 2016, and 5% more compared with the previous year. Besides this, we signed new businesses for COP 244 billion for a cash flow that is contractually committed of COP 314 billion that we will be receiving in the next four years. This result stands out when we compare this with the sales challenges that we have in the real estate business in Barranquilla and generally speaking, in Colombia. In 2023, our real estate business had sales for the industry, trade, and education, and more specifically for householding, in all the segments where the industry is present. This year, besides, the development business completed 19 international awards in Barú Calablanca Hotel. It's an asset that keeps performing over the base case with which we structured and built it. Besides this, and besides the positive financial results, the hotel has contributed to the social transformation of this region, generating more than 300 direct employments with fair and competitive wages. Now let's move on to slide number 17 where we can find the consolidated results for Grupo Argos. The consolidated figures, as you might see on this slide, despite not consolidating line after results of the concessions part from this year, the total revenues for the year show a figure of COP 22.6 trillion, which represent a 6% increase compared with the previous year. EBITDA, which is COP 5.5 trillion with a growth of 5%, while the net profit closed in COP 1.5 trillion, exceeding a 1% of the previous year figure. I want to invite you to move on to slide number 18. In the last quarter of 2022, the company consolidated operation and the associate operations in Central America. Contributions that represented a bit more than COP 150 billion for the consolidated EBITDA of the company. The start of the airport vertical will allow Odinsa developing new projects, and the sale of the associate assets in Central America will allow the company the required financial flexibility in order to advance in its renewable energy strategy, as we previously mentioned. Nevertheless, this implies that such assets will not be consolidated in Grupo Argos financial results from now on. From another side, for the fourth quarter of 2023, the non-requiring impacts were presented for the close of the sale of the assets of associates in Central America, and the deferred tax registered for Grupo Sura due to the transaction of exchange of the assets of Odinsa. This, for this last period, represents a bit more than COP 200 billion. These are key operations in the deployment of the business plan that the company has towards the future. Even though there was a negative impact in the fourth quarter of 2023, due to the transaction, and due to, as I already mentioned, the participation method, due to a deferred tax that was part of Grupo Sura that's not cash, the profit generated by the operation of these shares, both for Grupo Argos as well as in Grupo Sura, will be recorded in the first quarter of 2024. Meaning by this, in 2023, we are carrying a negative effect due to a deferred tax, but the benefit of the operation will be reflected in the first quarter 2024. Summarizing, when we go over the financial results, we can see a drop of EBITDA for this quarter. But after consolidating, after considering all these adjustments due to non-recurring situations which also strengthen our future operation, strengthen our financial operations. With this, the EBITDA growth grew at 12% compared with the same period, 2022. On the next slide, we can see the detail of the changes in the accounting that the company will have for 2024. The organization will break down several verticals in its businesses as a consequence of its strategy materialization, highlighting the change on how the assets of Cementos Argos are registered in the U.S., that as product of the transaction of Summit Materials, will not be consolidated line by line in the financial results of Grupo Argos. Now let's move on to slide 21 in order to analyze the evolution of indebtedness. The evolution of debt. In this front, net debt closed in COP 10.8 trillion, which represents a reduction of 16% compared with the closure of 2022. Likewise, net financial expenses for the quarter dropped 13% year-after-year. In separate financial results, the revenues for the year closed in COP 1.4 trillion, which represent an increase of 83% compared with the previous year. EBITDA closed in COP 945 billion, representing a growth of 99%, and net profit in COP 789 billion, which represent an increase of 128%. Thanks to the cash position with which we closed the year, the separated net debt for Grupo Argos that's detailed on slide 25 closed the year in COP 670 billion and the gross debt in COP 1.6 trillion, which grants the organization a complete financial flexibility and allows closing the year with healthy indictment indicators that are aligned with the credit rating that we currently have. Within the treasury strategies, we want to highlight that the company counts with investments in fixed income for close to COP 900 billion, which generated a positive carry, given that its yield is over the cost of the debt. The achievements that Grupo Argos has reaped in its 90 years of history are the testimony of entrepreneurial vision that emphasizes in the creation of leveraged wealth in the generation of positive externalities for society and the environment. This has been recognized once again by the Dow Jones Sustainability Index, which classified Grupo Argos as one of the most sustainable companies around the world in the sector. The standard that we've kept for the last 11 years, and under the same line, last edition of the Sustainability Yearbook made by S&P Global, highlighted Argos as one of four main companies in terms of leadership, environmental leadership and corporate government. This call can be an opportunity for recognizing the effort of our collaborators, more than 11,000 collaborators, which with commitment, have led the development that we have been sharing this morning. Now moving on to slide number 27, we could see that during 2023, the company complied with the guidance in terms of revenues and EBITDA that were shared with the market at the beginning of the year. Now I want to give the word to Juan Esteban so we can move on with Q&A. I want to invite you all to ask questions during this space, but we are also open to answer further questions after the session. Thank you, Jorge Mario Velásquez. Just want to remind you all that you can ask your questions in the Q&A session that's enabled in the Zoom platform. For the moment, we have a first question about the share reacquisition program. The question is: how have you been advancing in this program, both for Grupo Argos, Cementos Argos, and Celsia? Juan, you can answer this question. Well, it's important to remember that the reacquisition program that the company has began in March 2023, and there has been different phases, Grupo Argos, Cementos Argos, and afterwards, Grupo Celsia. But up to date, we've executed reacquisition for more than COP 200 billion. In the case of Grupo Argos, we've executed an independent mechanism, buying approximately 96%, 97%, the maximum possible, that has been translated into 9 million shares, ordinary and preferential, and this is a reinvestment of COP 88 billion. Cementos Argos has required COP 113 billion in shares, with hybrid mechanisms. Celsia recently began its reacquisition program, and it has reacquired close to COP 5 billion. Right. Just wanted to complement a note by saying that the approved amount that we have, and that's close to COP 1 trillion that we mentioned in different companies and the execution that we've done nonstop, except for the regulatory periods that we could not make reacquisitions due to regulations. I would also highlight that we've been developing and implementing innovative mechanisms such as the mechanism that was used by Cementos Argos, the book-build mechanism. That's the first time that's been used in Colombia in order to carry out an independent mechanism, acquisition mechanism, where the shareholders that place the supply. Not just specifying the amount of shares that they want to sell, but also specifying the price at which they want to sell. This is a mechanism that has been developed for capital markets. This has been widely used also abroad, but it's the first time that it's been used in Colombia. So we've innovated in the sense of the use, not just of traditional mechanisms. As Juan Esteban said, we are using the maximum allowed, 35% of 90% of 90 days, sorry, but also independent mechanisms, spot or book-build mechanisms, which strengthens the capital market, the optionality for those shareholders that want to have liquidity windows can use these. Well, thank you, Jorge Mario. In addition, we are also being asked by Sebastian Saldarriaga the following questions. Why you won't implement a program such as Sprint in Grupo Argos, given its success? Well, yes, I have two comments. The Sprint program that has been developed in Grupo Argos has been designed, approved, and sponsored, and supported by Grupo Argos as a matrix company for Cementos Argos. The shares that, or the actions, sorry, that Grupo Argos are taking follow the lines of what Sprint program is doing. What happens is that the emphasis that operational businesses give to a higher profit of the efficiency metrics happen within the businesses and don't happen within a holding company such as ours. But nevertheless, those same initiatives are being implemented from Grupo Argos with reacquisition programs, with market maker programs, with efficiency, with a deleveraging that, as we were mentioning, dropped to 16% in a consolidated manner. The decisions to reacquire shares through hybrid mechanisms is also there. I would say that this is a policy that we are implementing in a coordinated manner within Grupo Argos in all its businesses. We can also include here the actions being taken by Celsia, and are not just coordinated, but are also aligned between Grupo Argos and its businesses. Well, thank you, Jorge Mario Velásquez. Juan Camilo Dauder from Bancolombia asks the following question: "Good morning. Which are your impressions on the recent discussions around budgets and the decree to make budget transfers?" Let me start by this headline, speaking about these future funds. This company has supported the statements that have been made by some of the guild leaders, mainly Cámara Colombiana de la Infraestructura, in the sense that maintaining institutional rules are key for stability signals, independent from the rating that we can give to the event that happened. With the budget allocation of this COP 14 trillion, that had a very important effect in the reduction of the resources for INVÍAS and ANI. That's why it's so very important for the financing, not just of this project, but of projects that are underway. The effect that this has over the employment, over productive linkages, but mainly over the investment trust. This was very delicate. I celebrate that the Ministry of Finance has issued this decree correcting this mistake and guaranteeing that the resources will be assigned as the Congress has stated. The national budget goes through legislative approval, and it's executed by the executive branch led by the Ministry of Finance. I do celebrate that this has been changed. I celebrate that institutionality is kept, the flow of these resources for the sector, but more specifically for us to keep clear rules that offer stability and certainty, avoiding uncertainty, not just for Grupo Argos and its business partners, but also for those parts that work as financials. We have no more additional questions. Just want to reiterate that we have an open space for any doubts, questions, or queries that you might have. Okay. Thank you very much. Any questions, doubts, or queries, I want to reiterate the availability that we have whenever you need. Thank you all and have a nice day.