Earnings Call: Q1 2025

May 19, 2025

Summary

Q1 revenue rose 4.1% YoY, while reported EBITDA fell 7%; adjusted EBITDA was stable excluding prior-year land-sale income. Net income was slightly higher, and 2025 guidance points to double-digit U.S. volume growth and PEN 1 billion in CapEx.

Greetings, and welcome to the Grupo UNACEM First Quarter 2025 Results Conference Call. At this time, all participants are in 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. You may begin. Thank you, Melissa. 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 first quarter of the year. Later, Álvaro Morales, Grupo UNACEM Corporate CFO, will present the first quarter financials in detail. Please note that we might 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. 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 319 million, a 7% decrease year-over-year. Margins declined to 23.3% from 26.1%. However, excluding the one-time income effect from the sale of land banking in UNACEM North America last year, EBITDA would have been relatively stable, and margins would have declined 106 basis points from 24.4% instead of 26.1%. Our markets across the board performed well, with Chile and Ecuador supporting our incremental revenue this quarter. In the case of Chile, we are experiencing strong demand across all our vertically integrated platforms, as well as a more confident and optimistic market environment, with the construction sector showing signs of a sustained recovery. As such, cement prices have increased during the quarter, and we have several ongoing infrastructure projects like Puente Industrial, Proyecto Centinela, Carretera de la Fruta, and other highways that we service from our ready-mix and precast operations. In Ecuador, our first quarter results show a positive recovery, both in cement volumes and pricing, with our ready-mix operations working at full capacity in the development of the new urban area, San Patricio. Additionally, we believe the recent election of Mr. Noboa as president has provided a much-needed confidence boost among the business environment, with the immediate effect of a decrease in country risk and lending rates. In the case of the Peruvian cement and ready-mix markets, although volumes have declined, this impact was offset by better pricing in both segments. We believe the positive economic growth registered in the first quarter as GDP increased 3.92%, together with self-construction demand and private infrastructure projects, will be the source of incremental demand for the coming months. Our energy business, Celepsa, is performing above our expectations, with a strong top-line growth of 16.2%, supported by new long-term clients. In line with our investment strategy for Termochilca and our constant sustainability efforts, we are currently carrying out a major maintenance overhaul at the thermal power plant. This includes the upgrade of the gas turbine that will increase our generation capacity by approximately 18 megawatts and will improve gas consumption efficiency and extend the useful life of variable components by an estimated 33%. We expect this overhaul will conclude during the second quarter of 2025 and generate a direct impact on profitability, which we estimate in $3.5 million per year. This project will mobilize over 450 people per day at peak times, and for this, we will reinforce our Vida Primero safety program, which is a key component at Grupo UNACEM. Regarding the U.S. market, our operations in California posted a 49% increase in volumes year over year and 20% above our budget. This is the result of stronger demand, but more importantly, a reflection of our commercial efforts to recover market share since we acquired Tehachapi. This growth in California has offset a somewhat slow start of the year in our Arizona operations, but we believe that our combined cement volumes will post double-digit growth during the year. I would also like to share with you our inroads in the aggregate segment in the United States. As you know, we have vertically integrated operation with the production of cementitious materials and ready-mix operations in California, Arizona, and Las Vegas, as well as our aggregates business in Arizona. This past quarter, we have signed an agreement to acquire an additional 88 acres in Arizona with estimated reserves of 25 million tons for USD 6.7 million. The transaction will close the second quarter. We are now in the early stages of permit completion, and we are assessing the CapEx requirements for its exploitation. But we are very optimistic of the incremental value this operation will bring in the near future. Finally, this quarter, we completed a refinancing structure of our debt in local currency, with which we have improved our debt profile, and we are closing the quarter with 85% of our debt in long term and a net leverage ratio of 3.23 times EBITDA. In line with our financial planning, we are now working on the restructuring of our U.S. dollar denominated debt, which should be completed during the second half of this year. All of this is according to our financial strategy. Well, that will be all on my side. Thank you very much for the attendance this morning, and now I will pass it over to Alvaro for a detailed analysis of our financial results. Alvaro? Thank you, Pedro. Good morning, everyone. Thank you for joining us today. I am glad to present these first quarter financials. As Pedro mentioned, we had solid results this quarter, backed up by resilient volumes in Peru, a strong demand in California, and signs of recovery in Ecuador and Chile. Our consolidated revenues increased by 4.1% year-over-year in the first quarter of 2025. Our portfolio volumes performed well across the board, with the exception of a lower start of the year in Arizona. From Peru, cement dispatches registered 1.3 million tons, a decrease of 0.8% versus the first quarter of 2024, showing a positive trend and signs of a recovery in self-construction demand. On the other hand, clinker exports through the Conchán terminal pier reached 182,000 tons, 31% higher than those in the first quarter 2024, in line with our commitments to clients this year. Our ready-mix business in Peru recorded 588,000 cubic meters, compared to 717,000 cubic meters in the first quarter 2024, a decrease of 18% due to the completion of important infrastructure projects such as the Chancay Port and the Jorge Chávez International Airport. Nevertheless, dispatches to housing and private projects remain strong. We also continue dispatches to the Line 2 of the Lima Metro and the Bicentennial School projects. Celepsa's consolidated volume was 10.4% higher than in the first quarter 2024. Energy sales reached 1,052 gigawatt hours. Revenue from the energy platform grew 10.4% due to the higher volume sold from the hydroelectric business, with favorable hydroelectric conditions that offset higher marginal energy costs. In Ecuador, UNACEM Ecuador cement volumes increased by 3.4% to 275,000 tons of sold, compared to 266,000 tons sold in the first quarter 2024. Additionally, ready-mix volumes were 49,000 cubic meters, up to 78.9% from last year, as we are working at full capacity in the development of the new San Francisco urban area on the outskirts of Quito. In the U.S., our U.S. operations, UNACEM North America, reported 182,000 metric tons of cementitious materials during the first quarter of 2025 versus 243,000 metric tons in the first quarter 2024, 15.8% higher. Tehachapi contributed with 152,000 tons of cement sold. Ready-mix operation recorded 232,000 cubic meters sold, 8.7% lower than in the first quarter 2024. Aggregates volumes were lower by 14.2%, amounting to 361,000 metric tons. Prices remained solid in both markets. In Chile, UNACEM Chile cement dispatches recorded 136,000 tons during the quarter, which is 3.7% lower year-over-year. Ready-mix dispatches were up by 29.3%, with 259,000 cubic meters dispatched, a recovery that, as Pedro mentioned, we expect to continue throughout the coming months. Consolidated cost of sales were 4.6% higher in the first quarter 2025 due to higher production costs in UNACEM Peru, explained by the scheduled maintenance in the quarter and higher marginal costs in the energy platform. This increase was offset by higher economies of scale at Tehachapi, Ecuador, and the integrated operation of Chile that have cement, ready-mix, and precast. As a result, gross margin was 25%, slightly down from 25.4% in the first quarter 2024. Our administrative expenses in the quarter were 8% higher than in the first quarter of 2024. This increase is due to the new operation of Las Vegas facility, insurance expenses, and higher depreciation in the U.S. Additionally, as disclosed in our strategy, IT expenses were higher as we were reinforcing our platform to build stronger capabilities within the group. Still, cash administrative expenses remained stable as a percentage of revenues, from 8.4% to 8.7%. Selling expenses were slightly higher as we strengthened our sales force in Peru. In the first quarter, other income and expenses net recorded an income of PEN 5 million compared to PEN 26.5 million in the first quarter 2024. This is explained by a one-time income from the sale of land in North America last year, which had an effect of PEN 27.5 million. Other effects included higher expenses at Unicon Perú due to the launch of the new brand and higher port operation costs at UNACEM Peru. Consolidated EBITDA for the quarter was PEN 390 million, 7% lower than the EBITDA of PEN 419 million in the first quarter 2024. Better volumes, prices, and operating margins of Ecuador and Chile were partially offset by the lower economies of scale in cement operations in Peru. A lower margin in energy due to a higher marginal cost and a decrease in ready-mix and aggregates volumes in Arizona. EBITDA margin for the first quarter 2025 was 23.3% versus the 26.1% achieved in the first quarter 2024. As Pedro mentioned, excluding non-recurring income, EBITDA for the quarter would have been stable compared to the first quarter 2024. EBITDA for the last 12 months was PEN 1,631 million, compared to PEN 1,533 million in the first quarter 2024. Last 12 months EBITDA margin improved slightly to 23.6% from 23.2% in the same period of last year. The increase was driven by a recovery in cement and ready-mix volumes in the second half of 2024 across all the group's operations. Additionally, the energy business made a significant contribution to the portfolio, resulting in higher energy sales due to the addition of new clients, coupled with a non-recurring income recorded in the fourth quarter of 2024. Finally, financial expenses were lower by 7.5% in the first quarter 2025 versus the first quarter 2024, as our refinancing strategy was implemented, benefiting from favorable market conditions. Foreign exchange in the quarter went from a loss of PEN 18.4 million in the first quarter 2024 to a gain of PEN 28.3 million in the first quarter 2025. Net profit from the quarter was PEN 112 million, slightly higher than PEN 111 million in the first quarter of 2024. This quarter net income was impacted by the effect of the taxes paid due to the retention of income tax from the dividends received from Ecuador. This effect amounted PEN 8.1 million. There was no comparable tax in the same period of last year. This is a temporary effect in the effective tax rate that will be diluted over time during the year. Excluding this recorded tax, net income in the first quarter 2025 would have been PEN 111.8 million, 6.5% higher. Consolidated net debt was PEN 5.3 billion, higher compared to the end of last year. Execution of CapEx that is in a better pace, non-recurring disbursements, and working capital needs for our U.S. operation were funded with bank loans. The net debt/EBITDA ratio was 3.2 times, slightly above the figures at the end of the previous year. During the quarter, we completed a refinancing of short-term liability of PEN 1,812 million in UNACEM Corp. and UNACEM Peru, extending the maturities and improving our debt profile. This transaction is aligned with the company's financial strategy of accessing more favorable market conditions in terms of interest rates. Our current liquidity ratio increased by 1.2 times, as our short-term debt significantly reduced to 50% at the end of the quarter. In terms of CapEx, disbursement totaled PEN 202 million, 112.1% higher than in the first quarter 2024. The main investments are related to the roofing of the clinker field. The sulfur dioxide emission reduction system in kiln number one at Azuay plant in UNACEM Peru. Major scheduled maintenance in Termochilca, ready-mix trucks at Unicon Perú and UNACEM North America. Thank you. That will be all from my side. Now we open the microphone for your questions. Thank you. Ladies and gentlemen, if you'd like to register your question by phone, please press star one on your telephone keypad. To register a question over the webcast, please type your question in the Q&A box and press enter to send it through. Monica, I'm showing no questions over the phone. Do you have any on the web? We don't, but we're going to give a couple of minutes just in case. Of course. Once again, if you have a question, please type it in the Q&A box and press enter. This is immediate. Melissa, we have one question. Our first question comes from Gabriel Perez, from Greycoat Capital. He wants to know our expectations regarding CapEx for 2025. I am going to pass it over to Alvaro. Thank you for the question. Our budget for the CapEx for 2025 is around $489 million. It is around PEN 1,000 million soles in the different companies of the group. Thank you. We have another question from Gabriel also. What are expectations for the U.S. market for this year? Thank you for the question. We are expecting to increase as a double digit in volumes in terms of orders for this year, and we are working very hard to reduce our production cost to better our results. Thank you. Another question from Justine Ibanez from Inteligo. If we can provide guidance from Chile, U.S., and Ecuador. I think we covered already the U.S., so I am going to pass it over to Alvaro to give some guidance regarding Chile and UNACEM Ecuador. Well, in case of Ecuador, we are looking that we will have a slightly improve in our volumes, 3%-4% for the year. This is our budget. In the case of Chile, as we mentioned in the call, there are a very important project that we are working with our ready-mix business and with our precast business that we are going to grow our volumes significantly. I think that maybe a double digits in Chile also. Mm-hmm. Thank you. Another question from Marco Mejia regarding the expectations of the impact of the last actions taken by Trump. I am guessing probably you are talking about tariff and those measures. Let me hand it over to Pedro. We do not expect any impact in the short term, not with regard to the construction industry. How Trump's actions affect the economy as a whole, that is to be seen, but we do not expect any impact in the short term. Thank you, Pedro. We have another question from Gerard regarding if we can provide details from the maintenance at UNACEM Peru, when it started and when it is expected to end. Gerard, it started in the first quarter, and it ends in early second quarter of the year. I will send you a follow-up answer with the details on days for you. Yes. In the case of UNACEM Peru, you have to consider that we have five kilns in our two plants. Normally, we try to make one 30-days maintenance for each kiln across the year. So you will see that the maintenance is going to be more stable in our results across the year. One more question from Justine Ibanez. If you can provide an update on the repurchase program, and if the program will expire soon. Alvaro. Thank you for the question. Regarding our share purchase program, we have a remaining of around 30 million soles, which is around 9 million shares for the rest of the year, and it is going to be all what we expect for this 2025. Thank you. I think we do not have any other questions on the website, Melissa. Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.