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

Good morning to you all and thank you for your presence today. In this conference, we'll be focused on presenting the results of Grupo Argos for the last quarter 2023. In this space, we have Jorge Mario Velasquez, President of Grupo Argos; Alejandro Piedrahita, Vice President of Strategy and Corporate Finance for Grupo Argos; Rafael Olivella, Vice President of Legal Management for Grupo Argos; Mauricio Ossa, President of Odinsa; Maria Clara Aristizabal, President of the Urban Development business; Pablo Arroyave, Vice President of Corporate Finance of Odinsa; and Andre Bejarano, President of Pactia. I want to remind you all that on the website, you can find all the information for this quarter where you'll find the presentation that we'll be following during this teleconference. For downloading, that you can access menu financial information afterwards in the section reports. In addition, we are also transferring this conference via space in X. I want to move on to Slide #3, and I want to give the word to Jorge Mario Velasquez, President of Grupo Argos.

Thank you, Juan Esteban, all the investors, shareholders, analysts and friends that are with us today in this conference. It's a pleasure having you, as well as the administration team for Grupo Argos and its businesses. Good day to you all. And it's great being able to reconnect with you all in order to start the report, not just for the last quarter 2023, but also how was the closure of the year 2023, and to say that the financial results were outstanding for Grupo Argos for this year. Product of the performance of all our investments, the separate financial results. Accumulated revenues for the year, closing COP 1.4 trillion. This means a growth of 83%. The EBITDA closed in COP 945 billion, it's 99% over last year. Net profit reached COP 789 billion, which doubles the closure of 2022, meaning the previous year. And this train of thought, the administration we propose to the shareholder assembly, a dividend of COP 636 per share, consolidating an annual growth rate of 13% for this dividend in the last 5 years. Grupo Argos closed 2023 with consolidated revenues COP 22.6 trillion and EBITDA of COP 5.5 trillion, growing at 6% and 5%, respectively, compared with the previous year. Even [indiscernible] that due to the creation of the airports and growth verticals, the main Odinsa assets are not consolidated line by line in the financial results. This is especially notorious for the impact that Opain has from midsize as the net profit closed in COP 1.5 trillion. This means a growth of 1%. And we can control a net profit had a growth of COP 916 billion, which means a growth of 4%. 2023 was a year that besides some milestones that we had as a business, I would like to make a brief recap. During February, Grupo Argos announced the start of its repurchase of shares program, which was executed throughout the year added to the programs approved by the shareholder assembly of Cementos Argos, Celsia, and Grupo Argos. This represents an amount of COP 1 trillion, and that up to date, more than COP 200 billion have been executed. Celsia announced its reorganization of its presence in Central America. By this investment, some assets in such region, this operation allowed to improve its financial flexibility. It allowed us to strengthen the liquidity position and reduce the net indebtment reaching an indicator leveraging -- a net leveraging indicator over EBITDA of 2.3x, which is especially important in a moment where we face high interest rates. Afterwards, the 16th of June, we announced the symmetry of framework agreement that had listed the terms of the exchange of Grupo Argos' participation in the food business at Grupo Nutresa by shares of Grupo Sura and in their participation in the shares of Grupo Argos and Grupo Sura. This transaction by which Grupo Argos exchanges our 9.9% of participation in Grupo Nutresa for portfolio and Grupo Sura shares implies the disinvestment of the mature company under some exchange firms that are reasonable for all the parts. And in a coherent way under the vision that the company has faced, the operation allows Grupo Argos to receive an adequate value for its participation in Grupo Nutresa without being subject to per ratings where besides the totality of the shareholders of Nutresa, count and will count with the flexibility to choose to be on the option that best suits their preferences. The 29th of June, Odinsa and Macquarie Asset Management placed in operation a new investment platform for airport infrastructure, which includes a test for more than COP 1.3 trillion. This is a milestone that represents the material -- the tangible materialization of its strategy as infrastructure asset manager and the recognition that this generates between world-class players due to its participation and capacity in the infrastructure business. The 18th of August, Celsia announced its entrance into Peru with the acquisition of Caraveli wind generation project, which is located in Arequipa with 218 megawatts of installed capacity. Our energy business would seek trying to use the attractive natural resources for renewable energy initiatives that this country offers. On the 7th of September, Cementos Argos announced a combination agreement of the assets between Argos USA and Summit Materials. This is a transformational milestone that strengthens the position of Cementos Argos as a relevant player in the industry of the first economy of the world. In January this year, the transaction was successfully completed, creating a leader platform in terms of construction materials with the national scale in the United States and with a company value that might be around $9 billion. From another side, at the close of 2023 from Grupo Argos, we've reached the reacquisition of more than 7 million shares. This efforts joined with the announcement section during the year, and the financial results were reflected with a higher appetite and with the evaluation of the ordinary and preferential shares of 50% and 69%, respectively, since the beginning of the repurchase program. Last, 6th February, Grupo Argos and of the parts of the framework agreement reached with success, the first share exchange, the company swapped the totality of the shares of Grupo Nutresa for 36 million ordinary shares of Grupo Sura that were owned by JGDB, Nugil, and IHC as and 14 million ordinary shares from the portfolio society owned by Nugil. From its side, 16th of February, following the framework agreement and following and complying with what has been stated in Decree 079 of 2024, we make a request to the financial superintendency for a 23.1 reacquisition of the public offer that will be done by Grupo Nutresa, that would be done jointly with destination to all the shareholders of Grupo Nutresa. Once this public offer has ended, and for the share acquisition of Grupo Nutresa, we'll have a second exchange by which the parties will -- and as this operation that has been stated in this framework agreement. Through 2023, the ordinary shares of Grupo Argos experiments in a price of 31% while the preferential shares increased 33%. In a similar manner, the ordinary and preferential shares of Argos, Celsia, and Cementos Argos represent an -- sorry, increased 70% and 77%, respectively, and Celsia had an increase of 6%. This trend was kept in the first months of 2024 since the beginning of this year till the end of February, all our shares recorded a 2-digit growth. Ordinary and share of Grupo Argos had a valuation of 11% in preferential shares of 15% in the same period. Ordinary shares of Grupo Argos grew 11% and preferential shares grew at 28%, and Celsia shares had an increase of 27%. Even though we must celebrate the performance of our shares last year, we want to reiterate that these value of our shares is not fully reflecting its intrinsical potential. Because of this, we'll keep on making the effort of driving all those initiatives that will reduce that gap between the real value and the price of the shares. Proof of this is that Grupo Argos is being traded on the market close to half of the value of that we have in our ledgers. While this year, this value has been exceeded at the end of each exercise. Because of this, besides the transactions that we just have gone over and which objective is to generate value for our shareholders, we keep on focusing on operational excellence, prioritizing in the deleveraging policy. In 2023, the consolidated net indebtment closed in COP 10.8 trillion, which represents a net debt indicated to EBITDA of 2x. Now we want to invite you to move on to Slide #7 in order to go over some of the operational results that we had in our different businesses. In 2023, the income or the revenue for our cement business reached a total of COP 12.7 trillion, which represented growth of 9%, while the EBITDA reached COP 2.6 trillion with a positive variation of 22% compared with 2022. As a result, the controller net profit for Cementos Argos was COP 320 billion. This is an expansion of 125% year-after-year, while the leveraging index measured by net debt relation to EBITDA close to 2.6x, which is the lowest one in 10 years. This indicator will keep on dropping during 2024, reaching less than 2.5x as cash that has been received due to the summer transaction. With the closure of the combination transaction between Argos through sales of the materials, Cementos Argos will be strengthened in order to consolidate its position and empower its growth not just in the United States but also in Colombia, Central America, and the Caribbean, strengthening besides this its export capacities towards the United States and other geographies. We also need to mention that the economic results of this transaction will be reflected in the financial results of 2024. During the quarter, Cementos Argos dispatched 3.8 million tons of cement. This is 2% less than the same period last year. Revenues dropped 7% year after year, while the EBITDA grew at 5%, which was translated in the quarter, which has better EBITDA margins, which reached 22%. During 2023, the company kept its dispatch level in the United States despite the site of a lower demand in the industry, we had a larger dispatches. The maturity in countries in Central America and the Caribbean and increased the exported cement from Cartagena, compensating the drop that we had in the residential segment in Colombia. The United States operations experimented an improvement in their margins. EBITDA reached [ $365 million ], growing at 46%. For [ insight ], the EBITDA margin had an expansion of 540 basis points, reaching a 21.4% representing the largest figure for Argos in this country in all its history. The Colombian revenues reached COP 3 trillion, 9% over what we had in 2022, while the export volumes grew at 12% year after year reaching 1.4 million tons. In Central America and the Caribbean, we closed with revenues of $544 million and an EBITDA that was placed in $124 million, which is a reasonably stable figure compared with the previous year. As you might see, as the cement business results in all these regionals are positive and the Summit combination offers a broad range of opportunities only for Cementos Argos -- not just only for Cementos Argos, but also for its shareholders. Now I want to invite you to move on to the energy business results found on the upcoming slide Fourth quarter 2023, Celsia closed the sale of a part of the generation assets in Panama, Costa Rica in [ EnfraGen ]. This transaction allows Celsia receiving $194 million for the sale of its shares, strengthening its liquidity position, improving the profitability of the invested capital in 284 basis points and reducing $198 million the consolidated debt that this asset has. And this deconsolidation is because of this investment in this consolidation we carried out. The company closed 2023 being the fourth electric energy generator in Colombia, with mainly a water portfolio with a thermal and efficient support and consolidating its leadership in the energy transaction not just in the country, but expanding towards reaching. The total installed capacity of the company reached something less than 2,000 megawatts with, a 70% originated in part from renewable sources through Servicios Energía, which is the solar generation platform that we have in association with Cubico. Celsia reached a capacity of 300 megawatts solar energy in Colombia. At the same time, the company is in the process of developing additional solar farms that will add an approximate capacity for 100 megawatts. We have the conviction of keep expanding our operations, our generation operations in the country, and we hope to advance in the development of this additional capacity that Colombia requires supporting clean energies. Celsia revenues in 2023 reached COP 6.2 trillion. This is an 11% increase compared with last year. And the consolidated EBITDA added COP 1.8 trillion, representing a growth of 4%. The consolidated net profit closed the year in COP 349 billion being impacted by an increase in the financial costs and due to the -- both our exchange rate. Total yearly EBITDA for Celsia, if we would add all of the investment platforms that are not consolidated in the financial results would be equal to a sum of COP 2.3 trillion. The commercial representation with which sales accounts in the thermal plants of [indiscernible] were main characters during 2023, supporting the Colombian electric metrics under the El Nino phenomenon. This last one has had an availability of 98%, over international standards, given reliability -- we're offering reliability to the electric system in the most critical moments. And I want to make a footnote to reinforce this message that not just solar platforms don't not just consolidate, but [indiscernible] reflect this is not consolidated either in the financial results. So the EBITDA generated by this operation, that's important in cases such as El Nino phenomenon, which is consolidated in the financial results of Celsia. Let me move on to Odinsa. In 2023, Odinsa kept contributing to the relevant infrastructure development in airport and infrastructure development together with Macquarie Asset Management, who is the largest infrastructure asset manager of the world. As a result of the cash was received by Odinsa in the consolidation of the airport platforms, during 2023 made the payment of the bonds issued in 2020 for a value of COP 280 billion advancing in the debt reduction and improving its capital structure that are to drive those budgets that are in structuring phase that are mainly found in Colombia right now. In relation with the actual state of our road concessions, it's relevant to point out that after the increase of the total that was accreted by the national government in January 2024. Our concessions such as Autopistas del Café and Túnel de Oriente Aburrá adjusted its rate based on the price consumer index for 2023, and there's no increase still pending from each side, Malla Vial Del Meta and Pacifico 2 updated their rates based on the consumer price index of 2022. It's important to highlight that ANI, or the A-N-I, has been complying punctually to this contractual commitments in respect to this last project. Moving on to the operational results of the company that you can find on Slide #12. The growth platform closed the quarter with an average daily traffic of 110,000 vehicles, slightly under what was registered in the same period last year. Looking at the totality of the year, we closed with a traffic that reached more than 38 million vehicles stable compared with the record we had in the previous year. Even with reduction is presented in the Autopistas del Café concessions that were a product of the temporary closure of El Alambrado bridge, which Odinsa placed and operate a new bridge in record time in order to reactivate the connectivity of the central part of the country with the northern part of the country. In airports, which figures are detailed on Slide #13, traffic during the quarter reached 12.8 million, growing at 16%, making the platform to close with 46 million passengers that were mobilized from which 40 million correspond to International Airport of El Dorado, which is a record figure for an asset that's operating at full capacity. Odinsa keeps betting on a development model, which thanks to the association of public and private capital has been possible to contribute to the closing down the gap, the infrastructure gap that exists in Colombia potential for sponsoring competitiveness, development, and especially social inclusion. We shall insist that in order to materialize the investments that we have under structuring right now, it's fundamental to keep the clear rules. And for the insertion of scaffolding can offer adequate conditions in order to keep on growing capital and strengthen the legal stability of the concession model. This is also key for the electric sector. Now I want to move on to discuss the results of Pactia. Real estate business, the effective gross revenue was of a growth of 6%, and the EBITDA for the quarter was COP 60 billion with a growth of 16%. After adjusting the disinvestments, the effective gross revenue and EBITDA grew a 5% and a 12%, respectively. In terms of the same assets for the accumulated year, the operational net revenue and EBITDA composed with growth of 16% and 19% compared with 2022. In total, contracts were renewed for 15,000 square meters and we place new contracts for 4,000 square meters mainly during the fourth quarter 2023. At the end of the period, the fund closed with the occupation of the non-hotel portfolio of 97.2%. This is a reduction of 9 basis points compared with the same period 2022 and an increase of 48 basis points versus the previous quarter. The sectors that presented the largest growth in terms of revenues for the last quarter 2022 where offices and commercial spaces with increases of 13% and 16%, respectively. These results were driven by the contractual adjustments of the [ time ] that we had due to a larger occupation. In the case of offices, the fund closed the period with a record occupation of 99.4%, an outstanding figure considering the effects of the pandemic in this presence of modalities of labor. The Urban Development business from midsize closed the year with a net cash flow of COP 105 billion, which represents a 76% over the average since 2016 and 5% more compared with the previous year. Besides this, we signed new businesses for COP 244 billion for cash flow that's contractually committed of COP 314 billion that will be received in the next 4 years. This result stands out when we compare this with the sales challenges that we have in the real estate business in Barranquilla and generally speaking in Colombia. In 2023, our real estate business had sales for the industry, trade and education, and more specifically for householding in all segments where the industry is present. This year, besides the development business completed 19 international awards in Sofitel Baru Calablanca hotel is an asset that keeps performing over as the base case with which we structured and built. But besides this and besides the positive financial results, the hotel has contributed to the social transformation of this region, generating more than 300 hundred direct employment with fair and competitive wages. Now let's move on to Slide #17, where we can find the consolidated results for Grupo Argos. The consolidated figures, as you might see on this slide, despite not consolidated in as a result of the concessions point from this year, the total revenues for the year show a figure of COP 22.6 trillion, which represent a 6% increase compared with the previous year. EBITDA, which is COP 5.5 trillion with a growth of 5%, while the net profit close to COP 1.5 trillion versus exceeding 1% of the previous year figure. I will invite you to move on to Slide #18. Slide #18. In the last quarter 2022, the company consolidated Opain and the Celsia operations in Central America, contributions that represented put more than COP 150 billion for the consolidated EBITDA of the company. And the startup of the airport vertical will allow Odinsa developing new project at the sale of the Celsia assets in Central America will allow the company the required financial flexibility in order to advance in its renewable energy strategy, as we previously mentioned. Nevertheless, this implies that such assets will not be consolidated in Grupo Argos financial results from now on. From another side, for the fourth quarter 2023, the non-recurring impacts represented for the close of the sale of the assets of Celsia in Central America. And the deferred tax registered for Grupo Sura due to the transaction of exchange of the assets of Nutresa for this last period represents a bit more than COP 200 billion. But these are our key operations in the deployment of the business plan that the company has for the future. Even though there was a negative impact in the fourth quarter of 2023, and to Nutresa transaction due to, as I already mentioned, due to the participation method, due to a deferred tax that was part of Grupo Sura that cash, the profit generated by the operation of these shares, both for Grupo Argos as well as for Grupo Sura, will be recorded in the first quarter of 2024. Meaning by this in 2023, we are carrying a negative effect to a deferred tax but the benefit of the operation it will be reflected in the first quarter 2024. Summarizing when we go over the financial results, we can see a drop of EBITDA for this quarter but after consolidating -- after considering all these adjustments due to non-recurring situations, which also strengthened the future operation of strength in our financial operations. And with this, the EBITDA grew 12% compared to the same period in 2002. On the next slide, we can see the detail of the changes in the accounting that the company will have for 2024. The organization will break down several verticals in this businesses as a consequence of its strategy materialization, highlighting the change on how as the assets of Cementos Argos are registered in the United States that as part of the transaction of Summit Material will not be consolidated line by line in the financial results of Grupo Argos. Now let's move on to Slide 21 in order to analyze the evolution of indebtment or the evolution of debt. In this front as net debt closing COP 10.8 trillion, which represents a reduction of 16% compared with the closure of 2022. Likewise, financial -- the net financial expenses for the quarter dropped 13% year after year. In separated financial results, the revenues for the year closing COP 1.4 trillion, which represents an increase of 83% compared with the previous year. And EBITDA closed to COP 945 billion, representing a growth of 99% and net profit in COP 789 billion, which represent an increase of 128%. Thanks to the cash position with which we closed the year, this separated net debt for Grupo Argos, that's detailed on Slide 25, closed the year in COP 670 billion and the gross debt in COP 1.6 trillion, which breadth of the organization, a complete financial flexibility and allows closing the year with healthy indebtment indicators that are aligned with the credit rating that we currently have. Within the treasury strategies, we want to highlight that the company counts with investments in fixed rent for close to COP 900 billion, which generated a positive carry, given that its yield is over the cost of the debt. The achievements that Grupo Argos has reached in its 90-year history as the testimony of entrepreneurial vision that emphasizes in the creation of leverage wealth in the generation of positive actionalities for society and the environment. This has been recognized once again say the Sustainability Dow Jones Index, which classified Grupo Argos as one of the most sustainable companies around the world in the sector. The standard that we've kept for the last 11 years, and under the same line, last addition of the sustainability here made by S&P Global highlighted Argos is 1 of 4 main companies in terms of leadership, environmental leadership and governance -- in corporate governance. This call can be an opportunity for recognize the effort of our collaborators, more than 11,000 collaborators, which with commitment have led the development that we have been sharing this morning. Now moving on to Slide #27. We could see that during 2023, the company complied with the guidance in terms of revenues and EBITDA that were shared with the market at the beginning of the year. Now I want to give the word to Juan Esteban, so we can move on with a Q&A.

And I want to invite you all to ask questions during this space, but we are also open to answer further questions after the session. [Operator Instructions] For the moment, we have a first question about the share reacquisition program. The question is, how have you been advancing in this program both for Grupo Argos, Cementos Argos, and Celsia?

Well, maybe Juan you can answer this question.

Well, it's important to remember the reacquisition program that the company has begun in March 2023, there has been different phases, Grupo Argos, Cementos Argos and afterwards Grupo Celsia. But up 2 days, we've executed reacquisition from more than COP 200 billion. In the case of Grupo Argos, we've executed an independent mechanism buying approximately 96%, 97%, the possible -- maximum possible that has been transferred into 9 million shares ordinary in preferential and this is a reinvestment of COP 88 billion. Cementos Argos has reacquired [ COP 130 billion ] in shares with hybrid mechanisms. And Celsia recently began its reacquisition program and has reacquired close to COP 5 million. Right. Just wanted to complement a note by saying that the approved amount that we have and that's close to COP 1 trillion that we mentioned in different companies and the execution that we've done non-stop, except for the regulatory period, so we cannot make reacquisitions and due to regulations. I would also highlight that we've been developing and implementing innovative mechanisms such as the mechanism that was used by Cementos Argos, the bookbuild mechanism. That's the first time that's been used in Colombia in order to carry out an independent mechanism, acquisition mechanism who are the shareholders that plays the supply, not just specifying the amount of shares that they want to sell, but also specifying the price at which they want to sell. This is a mechanism that has been developed for the capital markets. This has been widely used also abroad, but it's the first time that we did it in Colombia. And so we've innovated in the sense of us not just the traditional mechanisms.

And Juan Esteban said, we are using the maximum allowed, the 5% of 90% -- of 90 days, sorry, but also independent mechanisms, spot or bookbuild mechanisms, which strengthens the capital market and the optionality for those shareholders that want to have liquidity windows can use these.