Grupo Argos S.A. (GRUPOARGOS) Earnings Call Transcript & Summary

[Audio Gap] Together with the presentation that we'll be following in the during this teleconference. To download that, you can access menu, financial information and afterwards in the sections of reports. In addition, we're transmitting at this conference via space of Twitter. Now I want to invite you to move on to Slide #3 of the presentation, so we can start the meeting, and I want to grab the word to Jorge Mario Velasquez, President of Grupo Argos.

Thank you, Juan Esteban. Good morning to you all. I want to thankfully -- I want to thank you all for being with us during this conference. Last time we had this call we shared historical operational results for Grupo Argos and all its branches during 2022, despite the economic and public uncertainty the increase of interest rates and the pressure on inflation. Today is grateful to share with you all results in which during the first quarter of this year, Grupo Argos was able to sustain a positive trend. Reaching growth rates that are over 25% in its main consolidated figures. Revenues grew in COP 5.7 trillion with a positive variation of 25%. The EBITDA closed at COP 1.6 trillion growing 28%, net profit closed in COP 570 billion with a positive variation of 81%. And the net profit of the controller close at COP 406 billion with a growth of 152%. Of this, despite the significant increase in financial expenses part of the rate increase compared with the same quarter previous year, the results of this quarter growth the advancement in the operational excellency in our business lines, our first pillar within our cost cutting plan to close the gap between the price of our stock in the market and the fundamental value of Grupo Argos that added with the consolidated deleveraging for more than COP 3 trillion for the last 3 years, the ratification of the credit rating of AAA, an increase of 15% in the dividend by share in 2023 are example of the solidness of our company. In such way, as it was announced, to the market in its moment. During this year, we have already started repurchase share plan through the transactional mechanism of Colombian Stock Exchange. This is the process that we restart this 15th of May after our shareholder assembly has approved a repurchase plan up to COP 500 billion. We've also done during the assembly the authorization of the repurchase plan that has been proposed by Celsia equally during this year, we expect for Cementos Argos to look for the same approval in extraordinary assembly, subject to some operations that are already in course. Because of this, we expect that the companies of the Argos business group, count with the dual authorizations in order to carry out the reacquisition of its shares for an aggregated amount that could increase or could be over COP 1 trillion. Under the same line, during the last quarter, Grupo Argos acquired 13.5 million ordinary shares from Cementos Argos, which is equal to an additional participation of 1.2% over the total of the shares that are circulating currently. As with the repurchase program, with these measures, we want to reaffirm the trust in the business plan and the strategy that we have been executing from Grupo Argos and all its businesses. Given the excellent results and the prices of the current share prices under the vision that we have for Celsia, Cementos Argos and the Grupo Argos, we see a great potential to invest in these companies. This organization that was founded in 1934 during the great depression, has lived history of facing all those difficult cycles with the best energy. 5 years after its creation, company was already listed on the share market. And second world war exploded. And despite not disappearing, we even became stronger, becoming one of the strongest companies in the country. Decade afterwards which, when the world was concerned about geopolitical tensions of the nuclear threat and the Colombian security situation deteriorated. Argos expanded its operation all around the country, multiplying the equity of its shareholders for more than 100x between 1950 and 1990. The company kept betting on the country and consolidated its presence. At the same time, it generated quality employment and irrigated value in all the regions where it operated. Today, after some years of successful international expansion and diversification of our business line, we face once again an economic volatility context and political instability by which many are pessimistic. But nevertheless, as we've proven for more than 90 years of history from Grupo Argos, we keep on working constantly in order to deliver good results to our shareholders, ratifying the importance that the company has for Colombia. The importance that there is for Colombia, further to have companies that generate employment, investing and transforming positively the sectors that pull the economy. Now I want to invite you to move on to Slide #5, where we can see the details of the results of our businesses. We'll begin with the results of the Cement business. During the first quarter 2023, the cement business showed relevant growth in all its geographies. The Colombian region presented a growth of 13% in revenues and 39% in EBITDA. In the United States of 22% in terms of revenue and 77% in terms of EBITDA and in Central America and the Caribbean, 5% in revenue and 2% in EBITDA. We start seeing a recovery of our margins. Product of the focus in operational excellency and the policies that have been taken in order to stabilize the cost under this inflation pressure environment and the strategy of client optimization and business segments. All these actions give us a result beginning of the year with a growth of 2 digits in all the P&L lines. The revenues reached COP 3.4 trillion with 31% growth year after year. EBITDA close to COP 594 billion, growing 65% compared with the previous year and increasing simultaneously the EBITDA margin in more than 350 basis points. The control and net profit closed in COP 78 billion to 159% over the same period 2022. In operational terms, for the quarter, the cement volumes reached 3.9 million tonnes while the concrete business recorded volumes of 1.9 million cubic meters. These are record so that slightly less compared with the previous year, provoked mainly by the rainy seasons that are normal in the state of Georgia in the United States. And the interruptions of roads, such as Pasto-Popayán, that traumatized the cement distribution towards the South of the country during this period. We also want to highlight the behavior of the United States regionals, where the cement volumes have grown 7% compared with the previous year, and we expect to continue seeing good dynamics given the segment growth in nonresidential and infrastructure sectors that have been gaining traction month after month during the last months. We also want to highlight the growth of cement exports in the Colombian region, which volumes increased 16%, driven by an 81% increase as the exports are directed towards the United States. Equally, we see a recovery in the dynamics of the Central America and Caribbean regional, which is a reflect of the good performance in Panama, where volumes grew over 21%. And in the Dominican Republic, where there was a 14% increase led also by a 13% increase in prices. Now I want to invite you to move on to the next slide. So we can check the results of the energy business. Last 5th of May, Celsia informed this sale part of its assets in Central America. The hydraulic generation [ centrals of ] complex Dos Mares and the solar farms of Celsia Solar division in Panama as the wind park of Guanacaste in Costa Rica, which will be sold to EnfraGen, which is an investment vehicle of Glenfarne Group. The sale volume is close to $380 million and the equity value is of $194 million, and this is an operation which it's disclosure should happen in the next upcoming 3 months. With the sales of these assets, Celsia will have resources and financial flexibility in order to keep on deploying its strategy that's focused in renewable energy, especially in solar and wind energy in it's different geographies and also look for opportunities to strengthen the asset management portfolio, being in transmission or distribution and energy efficiency in other countries of the region. The company simultaneously will count with liquid resources for COP 300 billion for the next 3 years, which will be implemented initially by the transactional mechanism of the Colombian Stock Exchange, seeking to reaffirm the trust and its business plan and seeking to transfer value to all its shareholders. This transaction besides will allow the company to strengthen its liquidity position, improving the profitability over the invested capital that we calculate that will increase in 400 basis points. And simultaneously, this would allow to reduce close to 17% its consolidated debt and also reducing 11% of its financial expenses and going from 3 to 2.4x its net debt indicator over EBITDA. During the first month of the year, the energy company of Grupo Argos kept advancing in its consolidation as the Colombia solar generation leader, and it's -- we're grateful to announced the operation of 7 new solar farms with an installed capacity of 89.3 megawatts in Tolima and [indiscernible]. Celsia keeps being the leader in energy transition in Colombia. Moving on to the operational results that you might find on Page 9. The Energy business keeps showing an excellent behavior. The consolidated revenues reached COP 1.5 trillion during the first quarter, growing 15% year after year, and the EBITDA close to COP 514 billion, growing 13%. If we add to this the generated EBITDA in our platforms with the expansion of Caoba, C2 Energy, Laurel and the interesting operations of Tesorito, the EBITDA performed would close in COP 620 billion, which represents a 25% growth. The generated energy for the period closed in 1,764 megawatts power be commercialized in 863-megawatt hour. Finally, we want to highlight that during the quarter, the company has made investments for more than COP 360 billion by which COP 250 billion were done through investment platforms and COP 110 billion were directly under Celsia company. Now I want to invite you move on and look at the road and airport concessions, found on Slide #10. During the first quarter of this year, the Odinsa concessions kept showing outstanding operational results, both in its airport vertical as well as in roads vertical. First one, mobilized 10.4 million passengers, meaning by this 18% more than the same quarter previous year. While in our roads, we found a daily average traffic of 108,000 vehicles, which represents 3% more if we compare this with the previous year. From another side, we estimate that the close of the airport vertical together with Meta will happen in the upcoming months. Likewise, we want to highlight that Fitch ratings confirm the rating of the Bogota Airport and changed its outlook from negative to positive part of the recovery of the traffic that we have been evidencing in the airport and because of the financial solidness of this asset. Now moving on to the operational results of the company found on Slide #12, we can see how the strengthening of traffic in a road vertical is translated into higher internal return rate for each one of the concessions, highlighting the performance of Tunel de Oriente where the average traffic keeps on growing at an 8% compared with the previous year, increasing its expected [IIR ] to a 20% from each side. The airport traffic continues improving also translating into larger profitability of the asset. For example, in El Dorado, we saw very positive operational dynamics where despite the situation of the national air industry, it grew 17% -- 13%, sorry, and the [ IRR ] keeps in 17%. We also want to highlight that this quarter that we presented -- presenting Opain will be consolidated once again in Grupo Argos accounting given that the equity becomes positive. To close these chapters of Odinsa and Celsia, we want to highlight the positive behavior of all the infrastructure platforms of the company that have been created with the alliance of different business projects in the last couple of years. On Slide 14, you can see large numbers, the operational performance of our platforms. Caoba and C2 Energy presented EBITDA increases of 33% and 236%, respectively, Tesorito and Laurel increased -- started their operations recently. Jointly as the generation energy platforms generated an EBITDA that's close to COP 110 billion from its side. The airport and road assets generated an aggregated EBITDA of COP 476 billion for the quarter with a 13% increase on roads and 58% on airports. This figure correspond to the EBITDA generated by the assets but defer from what we have recorded in the consolidated financial results of Celsia Odinsa or Grupo Argos due to the account normativity and the agreements -- government agreements of each of these platform and to mention that this keeps strengthening, they'll gain high relevance in our company being coherent with which has been the access of the Grupo Argos strategy, which is positioning ourselves as an infrastructure asset manager taken into our site, the knowledge that we have around asset management in a figure in which the company acts as a professional manager of capital funds, private capital funds. And because of this, we charge commissions to the investors of these funds. Now I want to invite you to check the real estate business on the upcoming slide. The growth income was COP 110 billion, which represents a 13% increase year after year. The quarter EBITDA was COP 61 billion, improving an increase of 16% year after year. In terms of the same assets for the quarter, the operational net revenue and EBITDA grew 17% and 20% compared with 2022. In total, there were contracts renewed for a 60,000 square meters, and there were new contracts for 8,000 square meters. It would has -- happened in the first quarter of 2023. At the end of this period, the fund reached towards portfolio occupation of the non-hotels of 96%, which represents an increase of 125 basis points compared with the same period 2022 and a reduction of 99 basis points versus the previous quarter. These sectors that showed the largest recoveries were the storage units and hotels with an increase in revenues of 19% and 59%, respectively, compared with the first quarter 2022. These results have been driven by the placement of many warehouses products for SMEs customers and 1 with the higher revenue in the hotel business, thanks to the return of fairs and events, which incentivate the occupation and the food and beverage services. In terms of commerce and shopping malls, Gran Plaza, we want to highlight the good performance of the sales that increased the expectations that we initially said and led to an increase in variable profit of 27% compared with the same period previous year. Finally, the fund keeps with its active management in terms of optimizing the capital structure in order to mitigate the impact of interest rates during the first quarter this year, the fund reduced its debt stock 4% closed in its period with a loan-to-value of 34.3%. On the next slide, you could see the main figures of the urban development business that presented extraordinary results. The net cash flow increases previous year for more than 500%. And in terms of EBITDA, more than 300%. We signed 2 promises in Barranquilla of approximately COP 50 billion, with the first payment for the first quarter of close to COP 12 billion. We also had revenues for close to COP 7 billion, thanks to the activation of adjustment clauses in the contracts that we had previously signed. Once we increased the sellable square meters, and we simultaneously receive dividends Sofitel Casablanca Hotel for COP 2 billion. This was a bit less than a year after going into operations. With this, we closed the quarter with COP 26 billion with net cash flow, which is an unusual and very positive results for the first quarter. That's when we decide to pay the majority of land taxes that we have within the organization. During the upcoming quarters, we will keep on adding revenues to the cash flow, new closed businesses together with the ones we had in previous years, guaranteed revenues for COP 400 billion for the next 5 years. Since 2019, the Urban Development business has contributed to Grupo Argos revenues in its separated results close to COP 1 trillion. The P&L recorded the sale of La Reina Barranquilla. We also had revenues due to clauses of previous businesses, and we recorded the dividends due to the results of year 2022 of Hotel Casablanca, as we previously mentioned. This quarter, we had a great P&L result, but let's remember that in this business, we take the revenues once we present the document, and we have no ownership document for the upcoming months. This will happen in the last quarter, which means that only at the end of the year, we'll see and the accounting financial results. Now I want to invite you to move on to the consolidated and separate results for the organization, and this is found on Slide 18. Revenues reached COP 5.7 trillion this year in quarter, which represents an increase of 25% (sic) [ 20% ] compared with the same period 2022. The highest level of sales was translated into EBITDA increase at close to the period in COP 1.6 trillion with a 28% increase year after year. Net income profit closed in COP 406 billion, which is 2.5x compared with the same period last year. Profit made in just some months of this year is equal to COP 470 per share and anticipate the profit generation for this year in order for us to keep distributing more dividend value for all our shareholders towards a future. On Slide 19, we could see the variation and the contribution of each one of our businesses in terms of revenues, consolidated EBITDA. In these graphs, we can clearly see the good performance of all the companies that during this year, kept presenting, as we were mentioning before, operational and financial growth highlighting also our investment portfolio. As the concession business presented a reduction in the accounting contribution to EBITDA, given the de-consolidation of the assets of the road vertical. This transaction at its time prepares Odinsa for a powerful growth in long term. Here it's worth to mention that Odinsa with the creation of the Macquarie verticals start consolidating the majority of these assets, and this makes its contribution to the P&L will be significantly less. This low contribution to the consolidated P&L does not mean that the performance of the assets has changed. It only means that the way we build our consolidated P&L parting from the close of the road vertical and closing the airport vertical, we won't add nor the revenues nor the EBITDA nor the operational -- the operations of any of these infrastructure. It's an accounting matter, but not operational. This is why we are revealing the expected [ IRR ] suffice concessions that it's a much more adequate metric in order to measure the performance of the assets as the concession contracts are. To facilitate the understanding and the valuation of Odinsa and its platforms, parting from this quarter and through our web page, we will share an investment kit for this business and will offer conversations in the measure that you can see is necessary in order to drill down deeper in the understanding of the account mechanism that's materialized once these platforms start operations, and that where we could see them differently in terms of a financial scope, different from the participation and the consolidated results. Now let's move on to Slide #21. So we could see the consolidated indebtment of the group. In respect with the same quarter previous year, the consolidated net debt for Grupo Argos was kept around COP 14 trillion. The softness of the capital structure of the company is supported by AAA rating by Fitch ratings and Standard & Poor's. In the separated financial results as well as in consolidated financial results, we recorded positive results. The quarter revenues close to COP 429 billion. This is an increase of 51% compared with the same period last year. At the same time, the EBITDA closed in COP 354 billion, growing at 78%. And the net profit and COP 346 billion, which doubles this figure for the previous year. The net controlling profit for the same period close to COP 406 billion, which is equal to 2.5x same period last year. This profit came in just 3 months of this year is equal to COP 470 per share and anticipates the generation of profit throughout the year and be able to distribute more dividends and value to all our shareholders. Thanks to the cash position with which we closed the quarter, a separated net debt for Grupo Argos that's detailed on Slide 25, closed at COP 1.2 trillion (sic) [ COP 1.2 billion ], which is a reduction of 18% compared with the same period last year. During this quarter, we want to highlight that the cost of the debt of Grupo Argos started placing at 10.5% at the end of March. So this is 150 basis points less than what we had in 2022. Given the trend of the consumer price index. We hope that this will keep this trend, which means an important relief for the financial expenses of the organization that have significantly increased during the last year, given the tax rate increased context by the central banks around the world, but that have been mitigated do the treasury operations. Within the treasury strategies, we want to highlight that the company comes with investment -- in fixed rent investments for COP 455 billion, which generated a positive cash, given that its performances are over debt cost. The financial performance that we are reporting -- this outstanding financial performance that we're mentioning is based on a philosophy that the group has followed and that have allowed us to overcome difficulties in terms of economy priorities and social. This business is particularly larger when it's given in favor of all the groups of interest within the organization articulated with the needs that we share as a society and share for the environment as a necessary condition in order to operate. These are companies that are working and investing in Colombia in order to generate opportunities for you, people and women. And with institutional presence, integrally transform territories. In this sense, we want to share some of the initiatives that are connected with the social environmental agenda of Colombia. Energy Transition fight against climate change and fight in favor of equality and inclusion. And in front of energy transition, Celsia leads the mobilization towards renewable and nonconventional renewable energies in the country. The generation metrics of the company is almost 80% renewable and it keeps consolidating with the creation of platforms in order to expand our installed capacity, especially in wind and solar generation and this path during the first quarter of this year, we articulated the creation of the first energy community in Valle del Cauca, part of the project that is implemented -- that will be implemented in this region of the country consisting a solar farm that will supply electric energy to the inhabitants of this community. In terms of climate change and consistently with the efforts that have been announced by Grupo Argos in all its businesses in order to face this phenomenon with CO2 capture initiatives, co-processing, energy efficiency, carbon bonds, reforestation and sustainable financing between other strategies. We have been advancing together with the National University of Colombia with 4 agreements that will allow us to find solutions, focused on reaching a reduction in the emission intensity for 2030 at least 46% up to date, the Grupo Argos Business Group has reduced in a 36% the intensity of the CO2 emissions equivalent to the baseline that we had for 2018. Finally, in the equity inclusion front, the organization started a process to strengthen the contracting of products and services with gender perspective through the Sourcing2Equal initiative. This is a program led by IFC which objective is connect tribunal women with new market corporate purchase opportunities. This project allows the business group to extend its inclusion and diversity policy and broaden its impact aligned with the efforts that have been internally articulated, which turned the company today in an equity and gender referent around the world. Moving on to our guidance for what we'll work for rest of the year. Upon sharing the figures of this first quarter, expecting to exceed the consolidated revenues of COP 22 trillion and EBITDA higher than COP 5.2 trillion. With this, I want to give the word to Juan Esteban, so we can coordinate the Q&A session. Thanking you all for your attention and reiterating the availability of our team to attend any doubt that you might have now or in the future.

Thank you, Jorge. [Operator Instructions] First question comes from Rodrigo Sanchez from Corredores Davivienda.

In terms of a Pactia, what's the long-term strategy for this investment? Will you keep disinvesting assets? And second, there has been title repurchase, what would be the price over net asset value has this been? And have you sold any units from Grupo Argos?

Let me answer a part of the question afterwards, I'll give the word to Alejandro Piedrahita, who's here. And Andres certainly also if you want to make any comments. Pactia strategy has been concentrating in the profitabilization of the assets, the reduction of leveraging. So that the return of the investment -- of invested capital would be more interesting for Grupo Argos' investor, not just in the managing, but also in the private capital funds. Let me give the word to Alejandro so he can complement technical data of these reductions in terms of net asset value.

Thank you, Jorge. Coming back to this Jorge's comment and this strategy, it's a profitabilization strategy, having more stabilized assets, obviously, in a strategic manner, if we see the conditions and if we see the adequate values, there will also be the investments done. From our part of view we've done repurchase close to COP 16.5 billion, and that relation in this moment is close to a 90%. This is basically what has happened in Pactia up to date. I don't know Andres has any comments about this. If there are, it'd be great if we could hear them.

Thank you, Jorge. No comment to the questions asked of the data is right. But I just wanted to highlight the good occupation of the assets we have and the good results. But everything is complete in that answer that you already gave.

We have a question from Roberto Paniagua from [indiscernible].

In respect with Celsia -- so I was saying with respect to Celsia shareholders. Do you consider the disinvestment done in Central America successful? And what would be the geographical -- this investment strategy under this new regulations that we faced in Colombia?

Very good question, Roberto, and thank you because this gives me space to make 2 comments. Concrete answer is yes. We do feel not just satisfied, but we've also driven from the Board this investment project is, let me give a bit of context. Basically, part of the important function that holding has as Grupo Argos is to promote the rotation and allocation of capital in order to maximize return to it's shareholders. Central American assets, more specifically, those that were disinvested have certain particularities, they have a relatively finite lives. For example, Guanacaste asset is an asset that has to be returned to the nation. Once it ends its contractual life, that's relatively closed. The generating and contracting conditions in Panama have led to an important change in the nature of the long-term projections for those modest assets. And all this makes this investment of this asset will be a highly value generation operation including and obviously Grupo Argos as main shareholder return over the capital that has been invested in the energy business. As I mentioned in the call, we calculate that we're increasing 420 basis points, reaching figures that are over 80%. This affects that the value generation will proportionately drop much less than what we have in the invested capital. So this is a clear signal of value generation increase for the shareholders, including Grupo Argos. From another side, with respect to the question about the immediate deleveraging happening with $200 million that's -- that the asset has in Central America. It has a reduction benefit of the financial cost and alterations, as I mentioned in the call, this is an immediate effect in the financial result. But this also allows and this connects with the second part of the call. A better improvement in terms of capital allocation in terms of projects that will be much more profitable. We have a larger value generation. As I said and as the organization has expressed, there is resources give us large flexibility in order to look for renewable energy investments in Colombia or elsewhere where we can find regulation and investment conditions that will generate value to all our shareholders. We don't have a particular focus, but we are exploring alternatives that once they are mature enough we'll share to the market. But the main benefit of this investment. And that's why we feel very satisfied is that despite the returns are moderate, the assets generated value through their life and the generation expectation towards the future. We prefer this investing right now in order to seek for better profitability opportunities being in Colombia or being in other countries.

Okay. So we have a question from Steffania Mosquera.

Do you have any updates about the transaction of the airport vertical?