Earnings Call: Q2 2024

Aug 19, 2024

Summary

Q2 revenue rose 7% and EBITDA grew 6.3% YoY, while net profit was PEN 47 million after higher interest and a PEN 52 million tax contingency. FY2024 EBITDA growth guidance remains mid-single digits; leverage was 3.47x.

Greetings, and welcome to the Grupo Unacem second quarter 2024 conference call. At this time, all participants are in a listen-only mode. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. A brief question and answer session will follow the formal presentation. As a reminder, this call is being recorded. I would now like to turn the call over to Monica Paucar, Investor Relations. Thank you, Monica. You may begin. Thank you, Paul. Good morning, everyone, and welcome to our earnings conference call. This morning, our CEO, Pedro Lerner, 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. Also joining us today are Alicia Campos, our Chief Strategy Officer, and Julia Sobrevilla, our Corporate Affairs and Public Relations Director. 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, Monica. Ladies and gentlemen, good morning. It is a pleasure once again to share our quarterly performance with you. I would like to share my thoughts on the overall industry dynamics. Large cement players have been expanding mostly via inorganic expansion. As such, our peers have spoken openly about where they expect their footprint to continue growing. On that note, Holcim has announced its entrance to the Peruvian market via the acquisition of a local ready-mix company and a white cement producer. We believe a formal and seasoned player, such as Holcim's investment in Peru, will be a valuable recognition of the Peruvian economy and demonstrate once again the country's sound macro environment. At Grupo Unacem, we are committed to our growth with sustainability at our core. As disclosed before, our strategy is two-staged: unlocking value and unleashing growth. The first stage will strengthen our vertically integrated building materials and synergy platform in mature markets and enhance our reach to end customers in developing markets with the goal of capitalizing existing synergies in the five countries where we operate. The second stage will seek to grow our platform by tapping into our knowhow and brand recognition. In Peru, our award-winning brands, Sol, Andino, and Apu, together with the distribution network that covers the central region with over 1,000 points of sale under our Progresol flagship stores, have made us the market leader. Regarding our second quarter results, our consolidated EBITDA for the quarter reached PEN 389 million, a 6.3% increase year-over-year, explained by Tehachapi's contribution, efficiencies in UNACEM Peru, and stronger demand for ready-mix for public infrastructure projects such as the Chancay Port and new high schools. Our top line posted a 7% increase, with revenues reaching PEN 1.7 billion. In the North American market, Drake and Tehachapi second quarter volumes reached 165,000 metric tons and 159,000 metric tons, up 17% and 55% sequentially as the first quarter is seasonally impacted by adverse weather conditions. Furthermore, we have been making relevant progress in our commercial efforts as we are opening two ready-mix plants in Las Vegas to supply the market from our Tehachapi plant, and we will also lease additional terminals to supply Las Vegas and nearby areas. These efforts should have a marginal impact on our volumes for 2024, but should pick from 2025 onwards. We closed the quarter with a leverage ratio of 3.47 times EBITDA. Although this is above our three times EBITDA goal, the full year impact of our latest acquisitions, together with a stronger performance expected going forward, should contribute to lower debt levels in the next couple of years. Finally, I want to reiterate our confidence in the 2024 results. We see a pickup in self-construction in Peru and believe our strategic initiatives on the commercial front will offset the slowdown in certain geographies. We maintain our guidance of a consolidated EBITDA growth in the mid-single digits for this year. 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 results conference call. I will be glad to go through these second quarter financials. Our consolidated revenues during the second quarter 2024 were driven mostly by the incorporation in November 2023 of our latest acquisition, Tehachapi, as well as stronger sales in our ready-mix operations in Peru. This, coupled with higher average prices in our cement business in Peru, offset a decline on demand cement volumes and resulted in a 7% year-over-year increase in consolidated revenues. Peru. Cement dispatches registered 1.4 million tons, a decrease of 2.8% versus the second quarter of 2023, and a sequential increase of 1.7%, showing a positive trend and indications of a recovery in sales construction demand. On the other hand, clinker exports through the Conchán terminal reached 107,000 tons, 22.7% lower than those of the second quarter 2023, in line with our commitments to clients this year. Our ready-mix business in Peru recorded strong volumes during the quarter, with 729,000 cubic meters compared to the 600,000 cubic meters of the second quarter 2023. A growth of 21.4% on the back of ongoing infrastructure projects, such as the Chancay Port and the Bicentennial Schools project. Celepsa's consolidated volume was 8.4% lower than the second quarter 2023. Energy sales reached 871 gigawatt hour. Nevertheless, revenue from the energy side remained stable as Celepsa's and Termochilca results offset each other, given that Termochilca thermal generation is a natural hedge to Celepsa's hydro energy. Ecuador. UNACEM Ecuador second quarter volume recovered slightly compared to the beginning of the year, but market conditions remain weak. Cement volumes have declined by 2.8% to 295,000 tons sold, compared to the 304,000 tons sold in the second quarter 2023. Ready-mix volumes were 4.8% higher. Our operation is working at full capacity in the development of a new urban area in the outskirts of Quito. U.S.A. Our U.S. operation, UNACEM North America, reported 321,000 metric tons of cement sold during the second quarter 2024 versus 165,000 metric tons in the second quarter 2023, 94.5% higher. Tehachapi contributed with 159,000 tons of cement. Ready-mix operations recorded 254,000 cubic meters sold, 5.1% lower than in the second quarter 2023. Aggregates volumes were lower by 1%, amounting to 410,000 metric tons. Chile. UNACEM Chile cement dispatches recorded 113,000 tons sold during the quarter, which is 11.7% lower year-over-year. Ready-mix dispatches were flat, with 170,000 cubic meters dispatched. Consolidated cost of sales were 6.2% higher in the second quarter 2024 as a result of the volume decline in the cement business in Peru and Ecuador that implied lower volumes of scale and the incorporation of Tehachapi to the portfolio. However, higher average prices and fuel cost efficiencies resulted in a gross margin of 25.7%, better than 25.2% in the second quarter 2023. Our administrative expenses in the second quarter were 5.2% higher than in the second quarter of 2023, explained by the incorporation of Tehachapi and higher personnel and employees' profit sharing expenses in the cement business and concrete operations in Peru. Sales expenses in the quarter were 6.5% higher than the second quarter of 2023, due to Tehachapi and the commercial efforts that contributed to the improvement of results at UNACEM Peru. Sales expenses were in line with the volume sold. In the second quarter, other income and expenses net increased from an expense of PEN 10 million to an expense of PEN 33 million. This is explained by non-recurring records for the write-off of the investment in the Staten Island Terminal project and the recording of the fine for the SUNAT resolution or income tax from 2010. Consolidated EBITDA for the quarter was PEN 389 million, 6.3% higher than the EBITDA of PEN 366 million in the second quarter 2023. This increase is the result of better prices and operating costs at UNACEM Peru and Drake Cement, higher volumes at Unicon Peru, and better prices in all the operations in the U.S.A. The EBITDA margin for the second quarter 2024 was 23.3%, similar to the 23.5% achieved in the second quarter 2023. EBITDA for the last 12 months was PEN 1,546 million. Similar to the second quarter 2023, that was PEN 1,549 million, mainly due to lower cement volumes in Peru, Ecuador, and Chile, offset by better prices in Peru and the U.S.A. Lower energy volumes were accompanied by better prices. Administrative expenses were higher due to more consultancies, which support several projects being implemented in all our business units. Higher personnel expenses, mainly as a result of the incorporation of Termochilca Tehachapi into the portfolio, as well as higher non-recurring expenses. Consolidated net debt was PEN 5.3 billion, higher compared to the end of last year. Execution of CapEx, that is at a better pace, non-recurring disbursement due to the tax contingencies from 2010, and some working capital needs were funded with banks loans. The above compliant was amortization of long-term debt. All in all, net debt EBITDA ratio was 3.47 times at the end of second quarter 2024, above our 3 times target. However, we should deliver in the medium term, as Tehachapi operations do not reflect a full year of operations yet. Financial expenses were 71.9% higher in the quarter, explained by the new debt acquired at a higher cost. Foreign exchange in the quarter went from a gain of PEN 16 million in the second quarter 2023, to a loss of PEN 14.6 million in the second quarter 2024. Net profit during the quarter was PEN 47 million, impacted by higher financial interest and higher income taxes at UNACEM Corp. Related to the above-mentioned income tax contingency for the 2010 fiscal year, recorded in that period, that in total amounted PEN 52 million. In terms of CapEx, disbursement totaled PEN 270 million, 20.6% higher than the second quarter 2023. The main investments are related to the kiln number 3 dedusting system and the roofing of the clinker fields in UNACEM Peru, improvement in the grinding facility in Drake Cement, and increase in fixed assets for the ready-mix division in the U.S., mixer trucks and pumps in Unicon Peru, and kiln number 1, the bottleneck kiln to increase production in 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 press star 1 on your telephone keypad. The confirmation tone will indicate your line is in the question queue. You may press star 2 to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please, while we poll for questions. Thank you, Paul. We will receive questions also through the webcast. We had experienced a problem with the presentation, so we will share it on our website as soon as we finish with the call. There are no questions at the moment, so I would like to hand the floor back over to Pedro Lerner for any closing comments. Paul, let's wait some minutes to see if we receive some questions through the webcast. Let's give a few minutes to the audience. Okay, we have our first question through the webcast from Isaac Norton from Prima. The question is: Would you give us your insights about the entry of a new international competitor to the local market, the market configuration in the short and long term, among others? I will hand it over to Julia. Thank you very much for your question. This is Julia Sobrevilla. At this moment, we will not respond questions related to forward talk potential speculations on a new player, which, as Pedro has already mentioned, we welcome to Peru. Thank you, Julia. We have a second question from Gerard Ford from Sura. Could you give us more detail of the higher non-recurring expenses? Do you expect more of these non-recurring expenses for the following quarter? I will hand it over to Álvaro. Thank you, Gerard, for your question. We received a notification from the Tribunal Fiscal from Peru. Immediately SUNAT started to ask us for the money. It was PEN 52 million. This PEN 52 million is a contingency from the income tax of 2010. The composition of the PEN 52 million are three concepts: income tax payment for PEN 18.6 million, interest for all the period for PEN 28.2 million, and a fine of PEN 5.4 million. Everything was registered in this fiscal year. I will tell you that we are continuing in the Poder Judicial with our reclamation. We believe that we have our reason on our side. We have to register because SUNAT collected the money, but we continue to fight this contingency. Thank you, Alvaro. We do not have any other questions. Pedro, I will hand it over for closing remarks. Thank you, Monica, and thank you all very much for your time this morning. Please do not hesitate to reach out to Monica should you have any follow-up questions. Have a great day. This concludes today's conference call. Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.