Earnings Call: Q3 2024

Nov 19, 2024

Summary

Q3 revenue reached PEN 1.8 billion and EBITDA rose 18.1% YoY, with margin gains driven by operational efficiencies and stronger Latin American operations. Leverage eased sequentially to 3.23x, while 2025 guidance points to mid-single-digit revenue growth and stable consolidated EBITDA.

Greetings, and welcome to the Grupo UNACEM third quarter 2024 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 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, Christine. You may begin. Thank you, Christine. 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 third quarter of the year. Later on, Álvaro Morales, UNACEM's Corporate CFO, will present the third 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. This 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 past quarter performance. Our consolidated EBITDA for the quarter reached PEN 419 million, an 18.1% increase year-over-year, mostly explained by a margin improvement of 310 basis points to 23.4% on top of a 2.2% revenue increase to PEN 1.8 billion. All of our operations, with the exception of the U.S., have achieved stronger margins, a combination of our strategic initiatives on the commercial side as efficiency gains on the operating side. In our Peruvian core market, with internal consumption expected to increase 4% in the second semester of the year and lower interest rates, we are seeing a recovery in demand, with ready-mix volumes up 13% on back of large infrastructure projects like the recently inaugurated Port of Chancay, the new airport, and the new metro line. With the completion of these large projects, we're shifting gears to supply private infrastructure developments. Additionally, we believe self-construction will start to pick up the coming quarters. In the North American market, cement volumes reached 320,000 metric tons, up 105% as Tehachapi contributed with 163,000 metric tons. Pricing environment remains favorable in the U.S., and October has been our strongest month to date in our California operations. On the ready-mix segment, we saw a deceleration in volumes with customers on a wait-and-see mode, both on interest rate cuts as well as the presidential election results. Going forward, we're confident of our efforts in our newest operation and expect a volume increase of over 25% in the fourth quarter and mid-single digit growth for 2025. Overall cement sales in the U.S. should be in the high single digits next year, and ready-mix should recover lost ground with an expected mid-teens increase in volumes, partly owed to a full year of operations in the Las Vegas market. I am also pleased to report that our operations in Ecuador, Chile, and Colombia have recorded relevant improvements in the quarter. Ecuador has achieved important inroads in the ready-mix channel, operating at full capacity on contracted private projects for 2024 and 2025, expecting over a 20% annual increase in volumes for the 2023-2025 period. In the case of Chile, we are optimistic that the construction market will pick up next year and are already seeing indications for more activity, with our pre-cast business fully contracted until next year and several energy projects begin construction phase in early 2025. Our energy business posted combined EBITDA of PEN 42 million with a 21% margin up from 13% in the third quarter of 2023. The industry experienced considerably lower marginal costs during this quarter, as 2023 was impacted by a severe drought. Going forward, we expect Celepsa and Termochilca to maintain their contribution to consolidated EBITDA in approximately 10%. We closed the quarter with a net leverage ratio of 3.23 times EBITDA, down from 3.47 times EBITDA last quarter. As I have mentioned in the past, we are committed to reduce our leverage ratios and are focused on efficiency targets and a return-driven capital allocation approach to achieve this. All in all, I am pleased to report solid results for the quarter and expect top-line growth to remain in the mid-single digits for 2024 and 2025, supported by growth in our U.S. and energy division. Regarding EBITDA for 2025, we expect stable results as the U.S. operation gains share and our Latin American operations maintain similar levels. 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. Welcome to our third quarter results conference call. I will be glad to go through these financials. Our consolidated revenues during the third quarter 2024 increased 2.2%, reflecting in one side, PEN 99.9 million sales from Tehachapi, our new operation in California this quarter, as well as a non-recurring income from Celepsa for PEN 138 million in the third quarter of 2023. Excluding these effects, revenues will have increased 4.8% on the back of our Latin American operations. Peru cement dispatches registered 1.5 million tons, an increase of 1% versus the third quarter of 2023, and most important, a sequential increase of 10.2%, showing a positive trend and a sign of recovery in self-construction demand. On the other hand, clinker export through the Conchán terminal reached 149,000 tons, 14.4% lower than those of the third quarter 2023, in line with our commitments to clients this year. Our ready-mix business in Peru recorded strong volumes during the quarter, with 675,000 cubic meters compared to 597,000 cubic meters in the third quarter 2023, a growth of 13.1% on the back of the most important infrastructure projects such as the Chancay Port, Jorge Chávez International Airport, Line 2 of the Lima Metro, and the Bicentennial Schools project. Celepsa consolidated volume was 3.2% lower than the third quarter 2023. Energy sales reached 1,162 gigawatt hours. Celepsa and Termochilca's consolidated results remained stable as Termochilca's thermal generation is a natural hedge to Celepsa's hydro energy. UNACEM Ecuador volumes recovered slightly in the third quarter compared to the first half of the year as market conditions remain challenging. Cement volumes have declined slightly by 1.8% to 315,000 tons sold, compared to the 321,000 tons sold in the third quarter 2023. On the other hand, ready-mix volumes were up to 76.3%. Our operation is working at full capacity in the development of a new urban area on the outskirts of Quito. Our U.S.A. operations, UNACEM North America, reported 320,000 metric tons of cement sold during the third quarter 2024 versus 156,000 metric tons in the third quarter 2023, 105.7% higher. Tehachapi contributed with 163,000 tons of cement. Our ready-mix operation recorded 225,000 cubic meters sold, 10.8% lower than the third quarter 2023. Aggregates volumes were lower by 19.7%, amounting to 386,000 metric tons. UNACEM Chile cement dispatches recorded 134,000 tons during the quarter, which is 9.2% higher year-over-year. Ready-mix dispatches were up by 24.4% with 200,000 cubic meters dispatched, a recovery that, as Pedro mentioned, we expect to continue to pick up. Consolidated cost of sales were 4.7% lower in the third quarter 2024 due to operational efficiencies, most of them in the fuel mix and raw material in the cement operations, and lower marginal cost in the energy platform. Gross margin of 25.9%, better than 20.5% achieved in the third quarter 2023. Our administrative expenses in the third quarter were 13.5% higher than in the third quarter of 2023, explained by the incorporation of Tehachapi, PEN 8.5 million, higher personnel and workers' profit sharing expenses, PEN 3.9 million, and higher donations, PEN 1 million. Sales expenses in the quarter were 17.4% higher than in the third quarter 2023, and represents 2.1% of revenues, up from 1.9% revenues in the third quarter of 2023. The increase is due to the incorporation of Tehachapi, and additional commercial efforts at UNICON. In the first quarter, other net income and expenses recorded an expense of PEN 12.9 million against an income of PEN 6.2 million in the third quarter 2023. Last quarter reflected tax expenses of PEN 5 million on a fine associated with an income tax contingency for fiscal year 2000 and 2014, and a PEN 2.2 million extraordinary tax in Ecuador as a contribution for security. On the other hand, the third quarter 2023 posted a non-recurring entry from a recovery of overpaid value-added tax to UNACEM Corp., PEN 3.7 million. The sale of aggregate equipment in the U.S., PEN 2.2 million, and an adjustment in the closing quarries account in UNACEM Perú, PEN 4.7 million. Consolidated EBITDA for the quarter was PEN 419 million, 18.1% higher than the EBITDA of PEN 355 million in the third quarter 2023. This increase is the result of better volumes, prices, and operating costs, mainly in the cement and ready-mix operations in Peru, Ecuador, and Chile, operational efficiencies, and lower marginal energy costs. The EBITDA margin for the third quarter 2024 was 23.4% versus the 20.3% achieved in the third quarter 2023. EBITDA for the last 12 months was PEN 1,610 million compared to the PEN 1,497 million as of the last 12 months as of September 2023, mainly due to the inclusion of Tehachapi, the recovery of cement and ready-mix sales volumes, and higher average prices in the U.S. Consolidated net debt was PEN 5.2 billion, higher compared to the end of last year. CapEx requirements, non-recurring disbursement, and working capital needs for the Californian plant were funded with bank loans, the above complying with amortization of long-term debt according to schedule. All in all, net debt EBITDA ratio was 3.23 times at the third quarter 2024, declining sequentially. Leverage is above our three-time target. However, we should deliver in the medium term as Tehachapi operations do not reflect a full year of operations yet. Financial expenses were up by 64.3%. The main difference year-over-year is explained by interest for PEN 29.2 million on the new debt incurred to fund last year acquisitions, and the one-time unfavorable tax ruling recorded in the period for PEN 12.6 million. Foreign exchange in the quarter went from a loss of PEN 49.5 million in the third quarter 2023 to a gain of PEN 32.9 million in the third quarter 2024. Net profit during the quarter was PEN 140 million, higher than the PEN 79 million of the third quarter 2023. This quarter's net income was negatively impacted by higher operation and financial expenses at UNACEM Corp. due to an unfavorable tax ruling recorded in the period, and higher income taxes. Excluding this one-time effect, the third quarter 2024 net profit would have been PEN 163 million. In terms of CapEx, disbursements totaled PEN 421 million, 17.3% higher than the third quarter of 2023. The main investments are related to the roofing of the clinker fields in UNACEM Perú, improvements in the grinding facility in VECEMEM, an expansion of the ready-mix operations in the U.S., mixer trucks at UNICON Peru, and the optimization project of kiln number one at UNACEM Ecuador. Thank you. That will be all from my side. Now we open the microphone for your questions. Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please type your question into the webcast platform and submit. One moment please while we poll for questions. Ms. Paucar, I hand the floor over to you. Ms. Paucar, did you receive any questions? Yes, Christine. Thank you. Our first question comes from Marianne Goni. The question is: what do you expect of the level of CapEx for 2024 and 2025, considering the CapEx of maintenance of the new plants acquired? Will CapEx to EBITDA level remain above 35%? I am going to pass it over to Alvaro. Thank you for the question. The CapEx EBITDA is expected to be higher at approximately 50% this year and the coming year. Out of that PEN 210 million expected from this year, around PEN 60 million are maintenance CapEx for the group. Thank you, Alvaro. USD. All in terms of US dollars. Thank you, Alvaro. We have another question from Marianne. The level of Peruvian cement dispatches recovered year-over-year in this third quarter. Do you expect to maintain these improvements for the fourth quarter? Could you tell us about the participation in projects projected by the Municipality of Lima? How do you expect these projects to impact on cement dispatches in the short and medium term? Just a second, Marianne. Thank you, Alvaro. Yes. Thank you for the question. As we said in our comments, this year, 2024, we have very important projects such as Chancay, such as the Lima Airport, such as Bicentennial scope projects. What we expect is that the new projects that are coming from the Municipality of Lima can replace the volume that we have this 2024 and expect to be in the same level for 2025. Thank you. One more question from Marianne. What strategy are you taking to pay off the debt? What would be the leverage ratio target for the end of 2024 and 2025? Alvaro, can you help us with that question? Yes. Okay. Our debt strategy remains unchanged. We have been consistently taking short-term debt, awaiting central bank interest rate reduction. With the latest announcement, we are now focused on rebalancing our debt portfolio as planned. Our goal is to extend maturity with a more competitive financial cost. The idea is that we are going to continue deleveraging the company with our excess cash flow. Thank you. We have Just one second, please. We have one more question from Gerard Ford. What are the projections of top-line revenue and EBITDA growth in the U.S. for the full years 2024 and 2025? Alvaro? Just one second, Gerard. Gerard. Hi, Gerard. Thank you for your question. As I mentioned, our U.S. operations increased, in terms of volumes, 105.7% higher than the last quarter of 2023. That is because incorporation of Tehachapi. In terms of total income for the 2025 year, we expect an increase of 10% because we are going to have fully operating all the plants in the U.S. Additionally, we expect to have an increase in our EBITDA around 30% for next year. Thank you. We have another question from Luis Ramos from LarrainVial. Historically, self-construction has been the main driver for cement volumes in Peru. What are your expectations for this type of demand in 2025? What is your guidance for 2025 growth volume in Peru? Alvaro? Yes. For 2025, we expect to be flat in terms of volume. What will happen in 2024. In the self-construction, we have seen these last two quarters, an improvement in our sales there. There is a balance between informal economy or self-construction and our formal construction. We expect conservative, that next year is going to be flat in cement volumes in Peru. Thank you, Alvaro. Thank you, Alvaro. Our next question comes from Lorena Suarez. What is the projection of hydro and thermal generation in the energy arm with the El Niño droughts estimated for this year? We understand that the natural coverage of hydro and new thermal generation will be a match for you. Pedro, can you help us with that? Yes. Even though at the national level, we are talking about El Niño drought, that has not been the case for El Platanal, our main hydropower plant. So we have had, let's say, a relatively mild dry season. So I think that this patch will be in line with average years. And hydropower generation has picked up a little bit because of the general drought in the country. So I think the dispatches will be in line with an average year. Thank you, Pedro. We have one more follow-up question from Gerard. What are your long-term EBITDA margin projections for the energy business? I will pass it over to Alvaro. Thank you, Gerard, for the question. Well, we expect to have 25% EBITDA margin in our energy operations stable in the next years. Thank you. Christine, we do not have any more questions. Thank you. I would like to hand the floor back to you for closing comments. Well, thank you very much for your time this morning, and please do not hesitate to reach out to Mónica Paucar should you have any follow-up questions. Have a great day. Ladies and gentlemen, this does conclude today's webcast. You may disconnect at this time. Thank you for your participation, and have a wonderful day.