Earnings Call: Q2 2025

Aug 19, 2025

Summary

Q2 EBITDA rose 0.7% YoY and net profit more than doubled, while gross and EBITDA margins declined. Higher CapEx and working-capital needs lifted net debt; Peru infrastructure projects and the 2027 lime plant support the outlook.

Greetings, and welcome to the Grupo UNACEM Second Quarter 2025 Results Conference Call. At this time, all participants are on a listen-only mode. A brief question and answer session will follow the formal presentation, which you may ask via the telephone or the webcast. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mónica Paucar, Head of Investor Relations. Thank you, Rob. You may begin. Thank you, Rob. Good morning, everyone, and welcome to our earnings conference call. This morning, Pedro Lerner, our CEO, will discuss the latest developments that affected our operations during the second quarter of the year. Later on, Álvaro Morales, UNACEM's Corporate CFO, will present the second quarter financials in detail. Please note that we may disclose some forward-looking statements related to Grupo UNACEM based on currently known facts, expectations, and forecasts, circumstances and assumptions regarding future events. Many factors could cause the future results, performance, or achievements of Grupo UNACEM to be different from those expressed or assumed herein. So these should be considered for reference only. Pedro, you may begin. Thank you, Mónica. Ladies and gentlemen, good morning. It is a pleasure once again to share with you our performance this past quarter. Our consolidated EBITDA for the quarter reached PEN 391 million, slightly above year-over-year. Margins declined to 22.4% from 23.3%, explained mostly by changes in accounting practices in our U.S. operations, as we are now expensing all maintenance costs at the incurred time instead of accruing them throughout the year. All our Latin American operations posted positive financial results in spite of mixed volume performances. Our core Peruvian market had stable cement volumes but declining ready-mix, explained by the completion of the large infrastructure projects where we were involved last year. However, in spite of only a 3.3% GDP growth in the first half of the year, we are optimistic on volume performance in the medium term, as we expect a pickup in public infrastructure projects, both from the central government as well as the Lima municipality. Projects like Vía Expresa Santa Rosa and improvements in key highways and roads are already in the works. On the other hand, Chile and Ecuador continue their strong volume performance this quarter, supported by favorable market conditions, but more importantly, by our efforts on our go-to-market strategy in both operations. Finally, our energy division also recorded strong volume growth with the addition of new clients to its portfolio. I also wanted to comment on two important events for Grupo UNACEM. As of July, we implemented a major change in our go-to-market strategy in Peru. We have centralized our cement and ready-mix commercial efforts under UNACEM Perú, combining a sound sales team of over 150 professionals in the year with 460 mixers. The second important news was an event last week, the groundbreaking ceremony of our new lime plant located within our cement operations at the Condorcocha plant in the outskirts of Tarma. As announced in June of 2023, we have entered into a partnership with Mexican Grupo Calidra, a company with 115 years of expertise in the lime business, with operations across Mexico, Central and South America. With a total investment close to 70 million US dollars, the kiln will have an initial capacity of 200,000 tons per year. Its location is ideal as it is close to our limestone quarries and also to potential customers, mostly mining companies in the central area of Peru. We expect to initiate operations in the second quarter of 2027. With combined cement and lime operations, Condorcocha will become an important industrial hub in the central highlands of Peru, and we are certain this additional investment will bring welfare to the community. For Grupo UNACEM, Condorcocha is close to our heart, as this is where our cement operations began in 1956. That will be all on my side. Thank you very much for your attendance this morning, and now I will pass it over to Álvaro for a detailed analysis of our financial results. Thank you, Pedro. Good morning, everyone, and thank you for joining us at today's conference. I am pleased to discuss our solid second quarter results with you. As Pedro mentioned earlier, despite the mixed performance of our sales volumes, we remain optimistic about the next quarters. During the second quarter of 2025, our consolidated revenues were mostly driven by our Latin American operations. They were stable cement volumes in Peru and Ecuador, significant improvement in the Chilean operations and continued growth in Celepsa energy sales. In our U.S. operations, the strong performance of our California volumes offset the lower volumes in Arizona. This resulted in a 4.7% growth versus the second quarter 2024. In Peru, cement dispatches registered 1.4 million tons, an increase of 0.4% versus the second quarter of 2024, and a sequential increase of 2.9%, showing a positive trend and a recovery in self-construction demand. Likewise, clinker export through the Conchán terminal reached 169,000 tons, 58.4% higher than those of the second quarter 2024, in line with the recovery of the Chilean market. As we discussed in our previous conference call, our ready-mix business in Peru dispatched lower volumes during the quarter. We recorded 612,000 cubic meters compared to the 729,000 cubic meters in the second quarter of 2024. This decline of 16.1% is due to the absence of large infrastructure projects, such as the new Jorge Chávez Airport, Chancay Port, and Bicentennial Schools project, which generated significant demand that year. This was partially offset with better average prices as a result of our current mix of sales. As Pedro mentioned, we are optimistic going forward as we see a pickup in the infrastructure projects. Celepsa consolidated volumes increased at 6.8% compared to the second quarter 2024. Energy sales reached 930 gigawatt hour. Two important long-term agreements with Luz del Sur and Distriluz became effective in May. Our hydro and thermal capacities act as a natural hedge for each other in our energy platform. In Ecuador, second quarter volumes recovered by 2.4% to 302,000 tons sold, compared to 295,000 tons sold in the second quarter 2024. Sequentially, volumes were up by 9.8%. Ready-mix volumes were considerably higher, with 63,000 cubic meters dispatched, against 37,000 cubic meters in the second quarter 2024, as our operation is the exclusive ready-mix supplier for a new urban area on the outskirts of Quito. In the U.S., our North American operations reported mixed results. Cement and aggregate volumes in Arizona decreased by 6% and 9.5%, reaching 155,000 and 367,000 tons respectively. Meanwhile, ready-mix volumes in Arizona grew by 8.1%, reaching 275,000 cubic meters. The California cement operation grew by 10.8%, reaching 176,000 tons for the quarter. All in all, the consolidated cement dispatches of Drake and Tehachapi grew by 2.2% during the quarter. In Chile, our Chilean operations continue to improve. Cement volumes reached 132,000 tons, an increase of 16.8%. Our ready-mix volumes reached 276,000 cubic meters, an increase of 62.5% during the quarter. We continue to build a strong portfolio of clients, having presence in emblematic projects such as Line 7 of the Santiago Metro, the Américo Vespucio Oriente 2 highway, and mining projects such as Minera Arqueros and Nueva Centinela. Consolidated cost of sales increased by 7.5% in the second quarter of 2025 due to the decline in cement and aggregate sales in Arizona, which brought an increase in unitary fixed cost. Additionally, changes in accounting practices in our U.S. operations impacted this quarter results by $4.7 million. We are now expensing all maintenance costs as they are incurred instead of accruing them throughout the year. For the following quarters, we expect the opposite effects on results as both kilns shutdown annual maintenance have been executed in the first half of the year. Gross margin for the second quarter 2025 was 23.8%, lower than 25.7% in the second quarter 2024. Our administrative expenses in the second quarter were 5.3% higher than in the second quarter of 2024, supporting several projects being implemented across our business units. As disclosed last quarter, we have begun implementing the first stage of our global shared services. Our goal is to become a more agile and integrated organization by centralizing services, generating synergies, and operating under higher standards. As a percentage of revenues, administrative expenses remained stable at 7.4%. Sales expenses in the quarter were 18.9% higher than in the second quarter 2024, due to commercial efforts and marketing expenses that contributed to the improved results at UNACEM Perú and UNICON Peru. Expenses were in line with the volume sold, representing 2.1% of the consolidated revenues. In the second quarter, other net income and expenses were PEN 1.2 million, up from an expense of PEN 33 million. This is explained by the second quarter of 2024 non-recurring expenses of a write-off of the remaining investment in the Staten Island Terminal project after the sale of the associated plant in the first quarter 2024. Additionally, a SUNAT fine on the resolution for 2010 income tax. Consolidated EBITDA for the quarter was PEN 391 million, 0.7% higher than the EBITDA of PEN 389 million in the second quarter 2024. This increase is the result of better performance in UNACEM Perú, Celepsa, Ecuador, and Chile, with improvement in operating margins. EBITDA for the last 12 months was 1,633 million soles, higher by 5.7% year-over-year, driven by stronger cement and ready-mix volumes during the second half of 2024 across all group operations, and the results of the first half of 2025 explained before. In addition, the energy business made a significant contribution to the portfolio, with new clients that boosted sales, complemented by a non-recurring income recorded in the first quarter 2024. Financial expenses were 19.9% lower in the second quarter 2025, explained by lower stock of debt and a non-recurring financial expense from a tax process recorded in the second quarter 2024 of 28.2 million soles. Foreign exchange in the quarter went from a loss of 14.6 million soles in the second quarter 2024 to a gain of 20.6 million soles. Net profit during the quarter was 106 million soles, more than double that the second quarter 2024. Along with improved operation results, last year net income was affected by higher financial expenses and income taxes at UNACEM Corp related to the aforementioned income tax contingency for the 2010 fiscal year. This amounted to 52 million soles. If we exclude the non-recurring effect on the second quarter of 2024, net income would have increased only by 26.6%. Consolidated net debt was 5.2 billion soles, higher compared to the end of last year. Execution of CapEx that is at a higher pace than the second quarter 2024 and some working capital needs were funded with bank short-term loans. All in all, net debt EBITDA ratio reached 3.19 times at closing of the second quarter 2025, slightly above our three times target. Our ratios are in line with our current financial covenant. In terms of maturity, short-term debt represented 17.2% and long-term debt 82.8%, reflecting a new profile following the refinancing of 1,812 million soles by UNACEM Corp and UNACEM Perú executed at the end of the first quarter 2025. The foreign currency exposure of total debt at the end of the second quarter 2025 was 9.2%. In terms of CapEx, disbursements totaled 349 million soles, 29.3% higher than the second quarter 2024. The main disbursements were related to projects such as the sulfur dioxide emission reduction system at kiln number one in Atocongo, the new primary crusher, and the construction of the new clinker storage yard in Atocongo and Condorcocha at UNACEM Perú. Additionally, Celepsa completed a turbine upgrade at Termochilca, increasing its generation capacity by 80 megawatts. Investments were made also in machinery and mixer trucks at UNACEM North America and UNICON Peru. Thank you. That will be all from my side. Now we open the microphone for your questions. Thank you. At this time, we will be conducting a question and answer session. If you would like to ask an audio question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. One moment please, while we poll for questions. There are no audio questions at this time. Are there any web questions? Are you compiling any web questions? Yes, Rob. Let's give one minute to the questions from the webcast. Okay. We are going to give it a minute while they compile some web questions. Thank you. Okay, we have our first question from Marianne Coney. The question is about CALCEM and if you can provide more details about the investment and what would be the ownership stake in CALCEM, especially if the guidance of CapEx this year includes the CALCEM investment. I am going to hand it over to Álvaro. Thank you for the question. As you know, CALCEM, it's a new company between UNACEM Corp, holding 51% of the share capital, and Grupo Calidra from Mexico, holding the remaining percentage. The new company seeks to build and operate an industrial plant in the Condorcocha area to produce quicklime with an initial capacity of 600 tons per day. As Pedro mentioned, last week, we have the groundbreaking ceremony that marked the start of the construction. The plant will start operations in 2027. The disbursement that we have done up to June 2025, it's PEN 18.7 million from UNACEM Corp. The overall investment for the project implementation amounts are roughly $70 million. That includes 2025, 2026, and 2027 CapEx. For this year, 2025, our budget is to complete $90 million as our part of the 51% of the investment as our capital contribution. For 2025, the overall is $90 million. Thank you, Álvaro. Are there any more web questions? Yes. We have another follow-up question from Marianne Coney. If we could explain the quarter-over-quarter increase in financial expenses. Álvaro? Yes. As I mentioned, the financial expenses were 19.9% lower in the second quarter of 2025 compared to the second quarter of 2024. But in the first quarter of 2025, our financial expenses were around PEN 87 million, and for the second quarter, PEN 102 million. This is because we have short-term debts that were included in the first quarter due to CapEx investments and short-term needs. Capital needs. Thank you, Álvaro. Are there any more web questions? Are there any more web questions? Yes. Another one, and I think that is a follow-up question from Marianne Coney regarding the lime plant. If there will be additional CapEx expected for 2026 and 2027 regarding the $70 million investment, I guess. Álvaro Morales, can you answer Marianne Coney? Yes. Thank you for the question. We expect that in 2026, we are going to complete mostly the construction of the new plant of limestone, of quicklime. The idea is that the remaining investment of around $61 million is going to be in 2026, because we expect to start operations in the first quarter of 2027. Mm-hmm. Just to complement that, the balance mostly will be spent in 2026. Out of the $18 million, that will be spent through the year, invested through the year. Are there any more web questions? We don't see any other questions rolled, so I'm going to hand it over to Pedro for his closing remarks. Perfect. Thank you all very much for your time this morning. Please do not hesitate to reach out to Mónica should you have any follow-up questions. Have a great day. Thank you. This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.