Aenza S.A.A. (AENZAC1) Earnings Call Transcript & Summary

Good afternoon, and welcome to the Aenza Fourth Quarter of 2024 Earnings Conference Call. [Operator Instructions] And please note that this call is being recorded. [Operator Instructions] Before we begin, I would like to remind all participants that today's call is for investors and analysts only. Therefore, questions from the media will not be taken. If you need any assistance, please contact Aenza's Investor Relations team. Please be advised that Aenza's management's comment today will include forward-looking statements. It should be noted that a variety of factors could cause the company's actual results to differ materially from those anticipated results or expectations expressed in these forward-looking statements. For a complete discussion of these risks, please refer to the disclaimer located at the end of this presentation. The company assume no obligation to update or revise any forward-looking statements to reflect new or changed events or circumstances. Presenting today on behalf of the company are Andre Mastrobuono, CEO; and Renzo Temoche, Vice President of Corporate Control and Financial Planning. I would like to turn the conference over to Andre Mastrobuono, CEO. Please go ahead, sir.

Good morning, and thank you for joining us on this earnings call. I will provide an overview of key developments over the past quarter. Following my remarks, Renzo Temoche, VP of Corporate Control and Financial Planning, will present our financial results for the year 2024. After the presentation, we will open the floor for questions where Cristian Restrepo, VP of Corporate Finance, will also join us. Let's start. November, we successfully completed the capital increase approved by general shareholders meeting in August 2024, supporting our long-term growth strategy. Through the 2 rounds of preemptive subscription rights and subsequent private placements, we achieved a full subscriptions of 414.7 million common shares, raising a total of $55 million. In the first round, 77.72% of the maximum number of shares authorized in the capital increase was subscribed. In the second round, an additional 3.64 percentage of the shares was placed. And finally, in the private offering, the remaining 18.64% of the shares were successfully subscribed, making the final step in the capital increase process. This successful process demonstrates the confidence of our investors in Aenza's strategic direction. In December, we successfully completed the registration process with SEC, in which also marked the conclusion of the delisting process of Aenza Securities. This step allowed us to focus on our local markets, aligning our financial and operational strategy with Aenza's regional priority. Also in December, Terminales del Peru, a consortium formed by our subsidiary, UNNA Energia and Oiltanking Peru filed an arbitration claim against Petroleos del Peru S.A. before the Lima Chamber of Commerce and Arbitration Center. The arbitration seeks to resolve differences regarding the fulfillment of certain obligations related to the operating agreement for Terminales del Centro and Terminales del Norte, both agreements dated July 17, 2014, while we continue to comply with the terms of these agreements. Also in December, a financial operation initiated in 2017 was successfully concluded, after which our corporate headquarters in Miraflores, Lima became, again, part of Aenza assets. This aligns us with our efforts to optimize and better manage our corporate resources. Regarding our ESG performance, in addition to the significant year-over-year increase in our corporate sustainability assessment score from S&P Global, we want to highlight that 2 of our sustainable initiatives were recognized as finalists in the 2024 GRI Infra Awards Andean in the categories of engagement and women. We are affirming our focus on creating value with a positive impact. Now I'm going to mention some specific events that took place at the beginning of 2025. While they are not expected to have a significant financial impact, we consider them relevant updates for our stakeholders. The first is the Chancay Bridge incident around the midnight of February 13, a bridge in Norvial, our toll road concession collapsed. As we have been consistently communicating, we have fully complied with our contractual obligations, and preliminary investigations conducted by the regulator indicate that the collapse was caused by the sudden undermining of one of its pillars due to natural factors. Our primary focus has been to ensure proper support for those affected and their families and to activate the corresponding insurance coverage for them. Additionally, we prioritized restoring road connectivity, which was achieved through the installation of a temporary bridge on February 23. While this incident is a serious matter, and we have treated as such, we do not anticipate a material financial impact on our 2025 results. The next event is the designation of our external auditors for the coming period of '25, '27 periods. Given that the terms of our current external auditors is coming to an end, it's necessary to appoint new auditors for the mentioned period. Now Aenza is conducting its evaluation, and a recommendation will be presented for the shareholders' approval. The general shareholders' meeting has been scheduled for March 27 this year, where the company will present proposals and our recommendations on the shareholders who will vote for the auditor. My closing remarks are we acknowledge that our 2024 consolidated results did not fully meet expectations, impacted mainly by Cumbra subsidiary Morelco in Colombia in relation to cost overruns and the increase in social conflict in each project, Santa Monica with Ecopetrol. Nevertheless, our infrastructure, energy and real estate businesses are delivering results in line with our expectations, and we remain committed to enhancing efficiency and positioning Aenza to capitalize on new opportunities in the infrastructure and energy sectors across the region. Now I will hand over to Renzo, who will provide you further insights into our consolidated financial results for the year and key performance metrics for the fourth quarter. Thank you again for your time and continued support of Aenza.

Thank you, Andre. Results for fourth quarter 2024. Revenues, consolidated revenues reached PEN 4 billion, 7.8% lower than the figure reported at the end of 2023. In the engineering and construction area, the decrease in revenue was due to the lower production volume in the products and the execution, mainly in Vial y Vives-DSD of the Quebrada Blanca project that we ended in January 2024 In Cumbra Ingenieria for the project with Gold Fields; in Cumbra Peru for the Quellaveco project; and in Morelco for the Termosuria project. Likewise, in real estate area, the reduction in sales was due to the sales of a piece of land in Almonte during the second quarter 2023. This was partially offset by: one, the increasing energy revenues due to a higher oil production in the upstream business, higher revenues in the gas plant related to the maquila service provided to the Petroperu and higher storage and dispatch in the terminal businesses: two, the increasing Norvial revenues due to higher traffic and higher execution of the complementary works. Gross profit. Consolidated gross profit decreased by 50.3% in 2024, mainly due to the lower margin reported in the Engineering and Construction business due to the lower profit recorded in Morelco and Santa Monica project with Ecopetrol and the Termosuria project, and Cumbra Peru for the Jorge Chavez-Lima Airport, Quellaveco and San Gabriel project. The loss recorded in the Santa Monica project was due to expenses incurred that were not recognized by Ecopetrol related to the cost overruns and the increase of the social conflicts. Operating income. Administrative expenses increased by 1.5% in 2024, reaching 5.6% of the revenues compared to 5.1% of the revenues in 2023. The increase was mainly due to Line 1 of the Lima Metro and Norvial associated with the studies for the development of the new businesses. Other operating income and expenses in 2024 records in the Engineering and Construction business, the impairment of the intangibles in Morelco for PEN 53 million, PEN 22.5 million related to trademark and PEN 30.8 million related to the goodwill. And the adjustment for a provision for the INDECOPI fine for PEN 2.3 million for the update of the tax. And in UNNA Energia, the expenses for the sanction imposed by OSINERMIN and OEFA regulators related to the Blocks I and V for PEN 7.3 million for the lack of prevention measure when the blocks were in operation. This was partially offset by: one, the recognition of the income in Vial y Vives-DSD for PEN 11.5 million for the refinancial with the General Treasury of the Republic of Chile as a tax benefit that condones part of the fine; and two, from net effect of the derecognition of assets and liabilities for the early termination of rights of use of the corporate building acquired in 2024. As a result, operating income decreased in 2024 compared to 2023 with a margin of 2.1% in 2024 versus 11.4% in 2023. Financial expenses. In 2024, net financial expenses increased by 33.5% versus 2023, mainly due to the financial interest of the corporate bond and interest related to the plea agreement included since December 2023. Likewise, in 2024, an interest expenses was recorded for adjustment for a fair value of a loan from the BCI to Inversiones en Autopistas for PEN 12.4 million due to the increase of the discount rate, partially offset by a financial income for the refinancing with the General Treasury of the Republic of Chile that waives interest. The exchange difference is mainly explained by the dollar position of the assets and the liabilities and the depreciation of the currency. Net loss. Consolidated net loss in 2024 was PEN 248 million. Net margin went from 2% in 2023 to minus 6.3% in 2024. EBITDA. Adjusted EBITDA in 2024 decreased by 46.1% compared to 2023 from PEN 810 million and PEN 437 million. Capital expenditures. As of 2024, the $48 million of CapEx related to the Energy businesses correspond to the -- mainly to the drilling of the wells in Blocks III and IV. As of 2024, the CapEx related to the holding from $20 million correspond to the acquisition of the corporate building in Petit Thouars Avenue, Miraflores. Investments related to the Line 1 for infrastructure and rolling stock spare parts are included as financial assets related to the concession agreement in the cash flow from operating activities. Likewise, investment associated with a land purchase in real estate are recorded as inventory. Backlog. Consolidated backlog, plus the Recurrent Businesses amounted to the total backlog for $1,450 million as of 2024, which represents a ratio of the backlog plus Recurrent Businesses or revenues 1.38 years. The Recurring Businesses are the oil and gas segment and the Norvial toll road concessions. Debt. Consolidated financial liabilities at the end of 2024 were $495 million. Debt at the end of 2024 increased 11.7% compared to the end of 2023, mainly due to the issues of the corporate bonds and the issues of promissory note for $4.2 million in the real estate business of the acquisition of land for a new project in Brena. Breakdown as follows: $48 million correspond to working capital associated to a client accounts receivables and leasing for the acquisition of machinery and equipment. $230 million correspond to infrastructure project finance. $184 million correspond to the corporate bond. This bond doesn't consider $21 million of initially issued discount. On May 14, 2024, we make an issue of the bond in the international market for $210 million, with an amortization terms of 5 years at maturity. The proceeds of this loan were used, among other corporate purpose, to execute the amortization of the bridge loan, fund the reserves account for the payment of the next bond coupon, repayment of a certain financial obligations and the company's organic and inorganic financing.$34 million correspond to the sale, 48.8% of the shares of Norvial, according to International Financial Reporting Standards. This operation includes the transfer of political rights to Aenza, with an option to repurchase the shares. Finally, $0.3 million correspond to a lease according to International Financial Reporting Standard 16. The reduction of the lease is due to the acquisition of a corporate building for $19.5 million. Thank you for your attention. We can start now with the Q&A session.

[Operator Instructions] Our first question comes from Jose [indiscernible] with Prima AFP.

I appreciate the opportunity to participate in today's earnings call. I have 3 questions I would like to address. First of all, I would to ask about Cumbra's backlog. It has experienced a significant decline over the recent quarters. And given the fixed cost in this business, I would like to understand how this reduction in backlog could impact profitability and EBITDA this year. And could you please elaborate on the strategies being implemented to address this backlog contraction? And I would like to know if you will need to make any further capital increase to the subsidiary going forward, taking into account this situation.

Cumbra performance is not aligned with our projects in [indiscernible] due to the Santa Monica project with Ecopetrol in Colombia. We have results in cost overruns and has shares that are being recognized by our clients. We continue to work on resolving to this issue. Regarding to the backlog, we anticipate the construction sector will see limited recovery in 2025. However, we believe to the outlook 2026 and 2027 is significantly more favorable. And we are working diligent to ensure that we will be well prepared to those opportunities. Regarding to the capital, we don't have plans to receive capital for this year. Thank you very much.

If possible, I would like to make a follow-up question on that one. Do you have any sort of guidance in terms of the EBITDA for this year at Cumbra's level since results were worrisome in the fourth quarter of this year? I would like to understand if we should expect as shareholders similar results for the following -- or the next quarters.

Well, for the 2025, we don't expect any extraordinary effect in our EBITDA. We see our EBITDA will be stable all that year. All the effects regarding to the Santa Monica project is included in the third of 2024.

Okay. And regarding the impairment of this Morelco's goodwill, could you provide, please, any insights into the reasons behind the impairment of Morelco's goodwill? And if possible, could you please elaborate on the loss that Morelco registered on the Santa Monica project? I would like to, if possible, to understand the reasons.

Okay. Yes, of course, Morelco assume the unforeseen expenses and the expectation that they will be recognized by Ecopetrol as stipulated in the contract . Ecopetrol's nonrecognition of the expenses incurred by Morelco was observed in 3 key aspects: unforeseen increase in the economic cost of the projects; change in operating and contract conditions, with unrecognized financial impacts and increase on social conflicts.

Okay. And I have a third question, please, but it's regarding this collapse of the Chancay Bridge. Could you please provide an estimate of the CapEx, or capital expenditure, required for the reconstruction of the Chancay Bridge? And do you have any source -- sort of outline of the expected time for the completion of this reconstruction? And I would like to understand if you will need to make any sort of amendments to the contract with the concession agreement with the -- at the Norvial level to address this reconstruction of the Chancay Bridge?

Okay. Thanks for the question. Regarding the Chancay Bridge, we have not yet an estimate on CapEx. But what I can tell you is that it is not that significant. It will not impact our results for this year at Norvial level. And we don't see that we need to make an amendment on the contract because of this issue. As Andre mentioned, Norvial has been compliant with all the -- regarding the contract, all the obligations in the contract. Norvial has been compliant with everything. So we do not see any impact or issue, more than few CapEx that we need to address there because of the installation of the bridges that we have put already, the provisional bridges. And we are working with the government to address the construction of the new building -- of the new bridge.

Our next question comes from [ Marco Media ] with [ Coupa ].

Well, thanks for the presentation. It's maybe a follow-up question on the last question. Is -- what could be the impact of the additional cost of Chancay in the margins of Norvial this quarter? Maybe could we expect other costs maybe to evaluate the other roads due to the impact of the growing current in the rivers?

The main impact of the -- the only impact that we are seeing is more or less PEN 2 million of income for the day that we did not have the -- 5 days that we didn't have the toll. We will address that with the government in some months. So that's the only impact for this quarter. That will not have impact in the overall year.

Next question from Omar Avellaneda with Compass Group.

Can you hear me?

Yes, we can hear you.

Okay. I only have one additional question. Most of them have already been answered. And this is the question I have. What is the current situation or the status of the renewable of the Norvial concession? Can you comment about that, please?

Concessions ends on 2028, but we have been working with the government in application of the return of the concession. That is in a good place with the government. With the Chancay Shanghai issue, that may delay a few months, the agenda of the contract, but we do not see any risk of -- don't have the agenda. We are still working hard to have the agenda for the application of the term on the concession. So that's the main point.

Okay. One follow-up on my side, if I may. When do you expect to sign this agenda?

Well, our schedule was to have signed the agenda by the end of this year. But we think that we will have signed the agenda at the beginning of next year, more or less.

We have no questions at this time. Therefore, we will conclude the conference. Thank you for attending today's presentation. You may now disconnect. Thank you.