Grupo Carso, S.A.B. de C.V. (GCARSOA1) Earnings Call Transcript & Summary

Good morning, everyone. And welcome to this webinar to discuss the results of the third quarter 2024 of Grupo Carso. Before we begin, I would like to remind you that this event is being recorded, and the information discussed today may include forward-looking statements regarding the company's financial and operating performance. All projections are subject to risks and uncertainties, and actual results may differ materially. Hosting this conference today is Mr. Arturo Spinola, Chief Financial Officer of Grupo Carso; Garnica Angelica Pina of Investor Relations, who will take you briefly through the third quarter financial results, and then we will take your questions.

[Interpreted] Consolidated sales of Grupo Carso totaled MXN 49 billion, growing 8.3% in the quarter. Grupo Condumex, Elementia/Fortaleza and Carso Energy increased its revenues related to positive impacts coming from higher volumes and the exchange rate, which went up 11% versus the same quarter of 2023, improving revenues from dollarized domestic sales, exports and sales [indiscernible] operations. On the other hand, it's important to mention at Zamajal, the hydrocarbons operation started to consolidate in sales in this quarter, contributing with additional MXN 430 million. Carso Infraestructura y Construcción and Grupo Sanborns posted 1% and 1.5% reductions, respectively. Consolidated operating income reached MXN 5.3 billion versus MXN 5.6 billion in the second quarter of 2023. This reflected a lower profitability from Grupo Sanborns and Zamajal mainly, and to a lesser extent from Carso Energy related to additional costs and expenses. EBITDA from July to September 2024 was MXN 7.2 billion compared to MXN 7 billion a year ago. The EBITDA margin changed 80 basis points from 15.5% to 14.7% in relation to sales. The consolidated company net income grew 6.9%, reaching MXN 3 billion, higher than MXN 2.8 billion last year for better financial results compensated for lower income from operations. Explaining the performance by division, the total sales of Grupo Sanborns reached MXN 15.5 billion, with a 1.5% reduction versus MXN 15.8 billion in the third quarter of 2023. Operating income in Grupo Sanborns totaled MXN 535 million compared to MXN 1.2 billion a year ago. This reduction in profitability was explained by higher costs and operating expenses. EBITDA was reduced 39.2% and net income reached MXN 407 million compared to MXN 858 million in the third quarter of the previous year. The sales floor remained stable, ending with 448 stores due to the opening of one new Dax store, 1 iShop and the reopening of 3 stores located in Acapulco. In the Industrial division, Grupo Condumex sales totaled MXN 13 billion versus MXN 10.3 billion in the same quarter of last year. This improvement in performance came primarily from higher sales of construction and automotive cables and harnesses, coupled with an 11% increase in the forex rate. Regarding operating income and EBITDA, these items reached MXN 1.4 billion and MXN 1.6 billion, respectively, a higher profitability compared to MXN 1.1 and MXN 1.2 billion a year ago. Carso Infraestructura y Construcción sales totaled MXN 10.7 billion. The divisions that have the best performance were manufacturing and services for the oil and chemical industry, with additional works in fluids, drilling and oil well reparations onshore and civil construction, which improved due to the progress in construction of retail projects. The performance, as mentioned before, offset lower volumes observed in infrastructure, where the Train Maya reached its final phase and is currently in administrative closure, and pipelines where lower telecom network installations were recorded. The operating income and EBITDA in CICSA improved 0.3% and 1.3%, respectively. Controlling net income went up 2.6%, totaling MXN 645 million. The projects currently in place are telecom installation services, equipment for the petrochemical industry, drilling of deep wells for Pemex, various services and equipment for the oil industry, the construction of shopping centers, hospitals, apartment buildings and the conclusion of the Mitla-Tehuantepec highway. The backlog totaled MXN 21.6 billion compared to the MXN 32.8 billion a year ago, or a 34.2% reduction. The sales of Elementia/Fortaleza increased 13.7% from MXN 7.8 billion in the third quarter 2023 to MXN 8.9 billion in this quarter. This was related to higher volumes and the peso appreciation, since most of this division's revenues are generated outside of Mexico, either from exports or commodity base, which reflected in the cost of [ system ] sales. Elementia's profitability improved, with operating income and EBITDA growing 29.2% and 23.8%, respectively, reflecting cost efficiencies within the supply chain. The sales of Carso Energy totaled MXN 910 million, higher than MXN 878 million last year. This was attributable to exchange rate effects in revenues from natural gas transportation services through the pipelines of Waha-Presidio and Waha-San Elizario in Texas, USA and the Samalayuca-Sasabe gas pipeline, as well as the revenues recorded in the hydroelectric plants in Panama. The operating income and EBITDA of Carso Energy were MXN 694 million and MXN 796 million, respectively. The net result totaled MXN 329 million. Lastly, beginning this quarter, the oil operations to explore and exploit the Ichalkil and Pokoch fields in the Campeche coast are being recorded and consolidated within the Grupo Carso numbers, where MXN 430 million in revenues were recorded as Zamajal. Due to startup activities, the operating result was a loss of MXN 145 million. EBITDA totaled MXN 102 million versus a loss of MXN 50 million a year ago. With this, I finish my general comments to proceed to the Q&A session. Thank you.

[Operator Instructions] Okay. We have Carlos Alcaraz.

My first question is about Grupo Sanborns. Could you give us more color on the reduction in operating profit? And my second question is about the construction division. You mentioned backlog about -- I don't have the -- if you -- yes, 21, but this backlog is related to the new government projects in Mexico or maybe -- and if so, do you release a date when your projects will start?

Thanks, Carlos, for the questions. Related to the Grupo Sanborns, one of the most important costs that has increased in this division is the labor cost, the personnel cost. As you know, the minimum salaries in Mexico was increased in the last year -- the last years in an important level, and that has an impact in our cost. As you know, Grupo Sanborns has around 47,000 people in its payroll, and that has an impact. We are now working in productivity in the way to compensate that salaries increase with a better performance of the people because that is a merit that maybe is to continue in the future years. On the other hand, we are in the end of the process to change the credit models. The current business is very important for Grupo Sanborns. And as you know, we have some problems in the last year, and we are using our policies and the process related to the credit, and has certain impacts that we hope this is the final quarter in which we have impacts relating the credit. Related to the construction question, no, the backlog that we are showing now is just with the business that we have now signed. We are not considering nothing for this new government. In fact, the new government has a lot of projects that we can participate as trains, highways, et cetera, but not are -- even nothing in the table. Our idea is to participate in the each project that we can have the expertise to get the possibility. But until now, there's nothing in the -- as a bid or something like that. We think that we are going to have information just for the first or second part of the next year. In this year, we are not seeing nothing new for us [ job ], the private business. In that case, the construction civil business is increasing. The installation business is maintained at its level. The only business with the government that we are increasing now is with Pemex. Fortunately, we are recovering some account receivables from them. But without that, the answer is the MXN 21,000 million that we are informing is just for projects already in process.

Okay. And another follow-up question. What percentage of this backlog do you expect to start in the next year?

It's important to say that, for example, in the case of installation, which our main customer is Pemex and America Movil Group, we have no long-term contracts signed. I mean we sell around MXN 10,000 million per year, but we have just the contracts by 2,000. Then that backlog doesn't represent the total possibility of revenues for this division. In the case of the Mitla-Tehuantepec highway, we are waiting to finish this year. I mean for the next year, we are not having backlog for the Infra division. Our expectation is that, that backlog was around MXN 15,000 million, Carlos, is our expectation. And because we have just an opportunity what is in the case of Pemex because regarding platforms bids, but until now, we have no information, but we have good possibilities to increase our backlog in the structures and equipment division. But that is our expectation for the backlog -- for the signed backlog.

[ Emilio ], we will open your microphone, you can take your question.

My question is regarding the -- your working capital during the quarter. We saw you had an increase in overdue receivables. Could you give us more color on the nature of this change? Was it related to the Pemex receivables you just mentioned? Or does it have to do with the credit strategy on Grupo Sanborns?

Yes. We are going to reduce our accounts receivable, mainly in Carso Infraestructura y Construccion. We recover accounts receivable from the government related with the Mitla-Tehuantepec highway, around MXN 5,000 million. And in the last quarter, we recovered around MXN 6,000 million from Pemex. As you know, Pemex and that highway is a very important business for us. Now we are calibrating our accounts receivable with them, but that was the main reason. We -- on the other hand, we are increasing our inventories in the retail division in preparation of the end year period. As you know, it is the most important quarter for the retail division. That is the comments about the working capital.

If someone else has another question, we will open your microphone, please proceed. [ Miguel ], your microphone is open.