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 fourth quarter 2024 of Grupo Carso. Before we begin, I would like to remind you that this event is being recorded and that 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 Spínola, Chief Financial Officer of Grupo Carso; and me, Angélica Piña, Investor Relations, who will take you briefly through the fourth quarter financial results, and then we will take your questions. Consolidated sales of Grupo Carso total MXN 59 billion, growing 6.6% in the quarter. Grupo Condumex, Elementia/Fortaleza, Grupo Sanborns and Carso Energy increased its revenues relating to positive impacts coming from current volumes, holiday season and the exchange rate. On the other hand, it is important to mention that Zamajal [indiscernible] operation, which start consolidated in the past quarter, and it's in developing process contributed with additional MXN 364 million. Due to the completion of large infrastructure projects, Carso Infraestructura y Construcción posted a 5.8% reduction. Consolidated operating income reached MXN 7 billion versus MXN 6.4 billion in the fourth quarter 2023. This reflected mainly a higher profitability coming through Grupo Sanborns and Elementia/Fortaleza and to a lesser extent from Carso Energy and Condumex while CICSA reduced their operating income. Consolidated EBITDA for Grupo Carso from October to December 2024 was MXN 9.2 billion compared to MXN 8.6 billion a year ago. The EBITDA margin improved by 20 basis points from 15.5% to 15.7%. The consolidated controlling net income grew 27.1%, reaching MXN 4.2 billion, higher than MXN 3.3 billion last year, reflecting both better operating and financial results. The performance by division was Grupo Sanborns recorded higher sales with a 2.2% increase due to [indiscernible] promotions, the launch of new technology models and higher fashion sales. Operating income totaled MXN 2.5 billion compared to MXN 1.1 billion a year ago. This improvement in profitability was explained by a 23.1% reduction in operating expenses since an extraordinary item related to credit provisions was recorded last year. EBITDA went up 75.8% with an EBITDA margin that recovered from 7.4% to 12.7%. Net income improved 83.6%. Regarding the sales floor, retail area ended with 451 stores due to the opening of 3 iShops, 2 Dax and the closing of 2 Sears stores. In the Industrial division, Grupo Condumex sales totaled MXN 12.7 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. Regarding operating income and EBITDA, these items reached MXN 1.3 billion and MXN 1.5 billion, a high profitability compared to MXN 1.2 billion and MXN 1.2 billion a year ago, respectively. Carso Infraestructura y Construcción sales totaled MXN 10.9 billion. The divisions that had the best performance were manufacturing and services for the oil and chemical industry with additional turnkey comprehensive works for land drilling and civil construction, which improved due to the progress in construction of private projects. The performance, as mentioned before, offset lower volumes observed in infrastructure, where the mining train is currently in administrative closure and pipelines where lower telecom network installations were recorded. The operating income and EBITDA in CICSA went down 58.4% and 53.7% respectively. Controlling net income reduced 52.1%, totaling MXN 749 million. The projects currently in place are telecom installation services, equipment for the petrochemical industry, drilling of deep wells for Pemex, the construction of shopping centers, hospitals, apartment buildings and the conclusion of the [indiscernible]. The backlog totaled MXN 23.9 billion compared to MXN 33.3 billion a year ago. The sales of Elementia/Fortaleza increased 12.3% from MXN 7.8 billion in the fourth quarter 2023 to MXN 8.8 billion in the fourth quarter 2024. This was related to higher volumes from its 3 divisions coupled with the peso appreciation since most of this division's revenues are generated outside of Mexico, either from exports or commodity based. Due to better margins in cement and an extraordinary item from [declaration] of assets in cement U.S.A recorded last year, operating income and EBITDA grew 344% and 24.6%, respectively. Carso Energy's performance in the fourth quarter improved 9.7% with total sales of MXN 959 million. This was attributable to an increase in tariffs from natural gas transportation services from the pipelines of Waha-Presidio and Waha-San Elizario in Texas, USA and the Samalayuca-Sásabe gas pipeline. The operating income and EBITDA of Carso Energy were MXN 733 million and MXN 842 million with increases of 10.2% and 12.5%, respectively. The net result totaled MXN 356 million. Lastly, beginning in the third 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 for additional MXN 364 million in revenues were recorded at the Zamajal division. Due to start-up activities, the operating result was a loss of MXN 313 million. But EBITDA totaled MXN 243 million versus a loss of MXN 2.3 million a year ago. With this, I finish my general comments to proceed to a Q&A session. Thank you.

[Operator Instructions] Carlos, I think your microphone is open now.

Congratulations for the results. I have 2 questions. The first one, where do you plan to invest the cash from the sale of Giant Holding? And could you give us more color what percentage of Condumex sales growth can be contributed to the favorable exchange rate and how much to higher volumes?

Thank you, Carlos. Regarding the Giant Cement plants that we are selling this year, part of the [indiscernible] we own 55% of that company. The rest, 45%, is owned by the Spain company. Then we are going to obtain around $300 million. Part of that money is to pay for Fortaleza Holding and the rest to invest in the plants in Mexico mainly. On the other hand, regarding the Condumex sales, as you know, the exchange rate has an increase around 14% compared with fourth quarter of 2023. But in the case of the automotive sector, we are increasing not just for the exchange rate, but for new businesses that we have obtained in the last month. More or less 60% of the increase in the sales is regarding the exchange rate, and the rest is high volumes mainly in the harnesses division. That is the main reason.

[ Emilio ], your microphone is open now.

A quick one regarding Zamajal. Could you provide some -- I think my microphone wasn't working, but can you hear me now?

Yes.

Yes, Emilio. Just a minute, Miguel. Emilio [indiscernible].

I got 2 questions. Firstly, regarding Grupo Sanborns' increasing EBITDA performance. Can you give us a little more color what was the reason for this? And is it due to an improvement on collection performance or in the credit portfolio? And secondly, I was wondering if you could provide a little detail on your 2025 guidance.

Yes, Emilio. In Grupo Sanborns, you remember the last year, in 2023, we have some corrections in our clients accounts. We recorded a negatively impact, an important negative impact, and that was the main reason of the increase in the EBITDA in this year. On the other hand, we have now a better control. We have regulated the accounts with our customers. We changed some policies. And now we are having a good revenue [indiscernible] and other -- and other market regarding the accounts receivable. That was the main reason of the increase is not because of the negative effect that we recorded in last year. And the second one was about the 2025 year. In the case of the industrial division, we have a good perspective because we are having new businesses in the harnesses division, and we are looking for more customers in the rest of the world for the cable division. And as you see, we are increasing our sales, and we are confident about this year for the industrial division. We think that the problems that we are facing with the U.S. and the new decisions of the government of that country, we are confident about the effects, the possible effects because the main products that we manufacture in Mexico are the harnesses is a little difficult to go back to the U.S. because we are intensive in labor, in blue collar. I mean we have around 50 -- 15,000 people working in that then we are confident about our situation, but we need to wait what is going to do the new U.S.A government. In the case of the construction division, CICSA, as you know and what we know, there's a change -- government change we don't expect new projects maybe in the second semester of this year. But we are going to reduce mainly our sales in the infrastructure division, but we are confident about the construction -- the civil construction division, the services for the oil companies, mainly Pemex and the installation, et cetera. But we are going to have the -- I don't think we are going to reach the same level of sales that we obtained in 2024. Maybe we're going to decrease around 9%, 10% in this year, but we are confident about the next year in this division. We accomplished all of the projects with the government, and we are confident about the future because our resource in the Maya Train and other projects with the government. Regarding Grupo Sanborns, we now have our credit system improved. We are now with better control, and now we are optimizing all of the floor sales. I mean we are reducing in the cases that we are -- we don't have the profitability that we expect. As you know, we closed some stores in the last month, but we have opened other stores. For example, in the case of Dax [indiscernible] iShop. Then our goal is to improve our -- the efficiency of the sales floor, and we are waiting maybe a 2-digit increase for the next years. And in the case of construction materials, I mean the Elementia and Fortaleza, we are improving our margins. We are increasing our sales. That is a result of the increase of our capacity in the Laredo and other plants. We are increasing our sales, our exportation sales. And we are optimizing our lines in Mexico as in the cover materials, cement and fiber cement products. Then we are expecting an increase for the [indiscernible] 5% or 6% in the case of Carso [Oil], the construction material. Carso Energy, our division of pipelines and hydroelectric plants, as you know, we begin with short pipeline that we are going to have in the north of Mexico, the Centauro del Norte. That pipeline is going to be ready in 2 years more or less. Again, when we finish that pipeline, we are going to increase our sales, our consolidated sales in -- around 80% increase in our sales of Samalayuca-Sásabe pipeline. And on the other hand, we expect that with the new government in Mexico to obtain our permits to continue with our geothermical projects in Mexico. And finally, our Zamajal division that is where we purchased PetroBal, and we have the investment in Talos, Mexico. We are going to continue in our developing phase. And we are going to increase our production in the case of PetroBal in this year maybe to the double because the newest -- there is that we are going to do. And in the case of Talos, we're going to continue with investment. But in the summer time, maybe we're going to take 2 or 3 years more in order to be in the production. That is the general guidance for this year in the different divisions. It's going to be a year maybe with surprises, but we are confident that we are going to face in the best way. Thank you, Emilio.

The next question comes from [ Miguel Ulloa ]. Miguel, we are opening your microphone.

And the first one would be regarding Zamajal and the margins to reach during the quarter. Could you provide some color on why the profitability is so big and if you're expecting similar level going forward?

Thank you, Miguel. Yes, regarding Zamajal, as you know, we are now even in the development phase, but we are going to have an important investment in this year. We -- now we are having sales of MXN 300 million per quarter, but we are going to increase around MXN 600 million maybe for the fourth quarter. That is our goal. As you know, depends on the result of our new [indiscernible] wins and exploration phase. We have an important CapEx for -- in this project that it has us in the [indiscernible] project that is part of Zamajal too. Regarding the margin, we are closing the year with about 15 and 16 EBITDA margin around the -- of the group. We have good possibilities to increase our margin in Condumex and in Elementia/Fortaleza. But as a group, we are expecting about 15% and 16% EBITDA for the 2025 year. That is our goal.

That's helpful. But in particular for Zamajal, what kind of profitability should we expect going forward?

In Zamajal, maybe we are going to look for the breakeven because we have a lot of expenses in order to conclude our exploration phase, but maybe we are going to eliminate the losses for an important profitability maybe to the 2026 year or 2027. This year, it is not going to be maybe with the earnings for this division.

Our next question comes from [ Bernardo Martika ].

My question is regarding Grupo Sanborns. I just want to understand what is both the short-term and medium-term plan in terms of store openings for Grupo Sanborns? If we could get a bit of color for that?

Yes. Thank you, Bernardo. New stores, we are having just for the Dax format and the iShop. We have some projects this year, maybe 10, 15 stores in the rest of the year mainly in the Dax format. We have some maybe 4 or 5 shopping iShop stores for the rest of the year. But on the other hand, we are optimizing our sales floor in the case of Sears, Sanborns and the rest format. That is -- our plan is more to invest and optimize the sales floor than -- and not to open an old store.

Can you repeat the question? Alejandro, we are opening your microphone.

Now just a quick one, Arturo. What do you expect to do on CapEx for this year? And does that include oil projects in Zamajal? And that's it.

Yes. Thank you, Alejandro. We have an important year in order to CapEx because we have an important investment, not just in the hydrocarbons division but in the Industrial and Elementia, Carso Energy. The -- we are planning around $800 million for this year. In the case of the Zamajal projects, we are reviewing, maybe could be a lot more, a year or more. But at least, we are facing $800 million for this year in the different divisions.

Okay. And one more, if I may, Arturo, on Carso Energy and the compressor station. It's been a little bit hard to see almost an average of 6% growth year-over-year in the second half of 2024. What's the business that's doing bad there, hydroelectric plants? If you would separate how much the Samalayuca is doing on EBITDA, can you give us some color on that? Out of the MXN 3 billion EBITDA you generated for the full year, how much is Samalayuca gas pipeline?

Yes, Alejandro. Maybe it's important to say Samalayuca-Sásabe increased around 25%, 27% the sales because of the compression extension that we began in May, June of the last year of the 2024 year. On the other hand, the hydroelectric plants faced increasing the price of the energy in the [indiscernible] division. And we have for around 2 or 3 months one of the hydroelectric plants stopped because of a maintenance issue. Then we are going to -- we mostly have a better result in this year because the increase in the Samalayuca-Sásabe pipeline sales were compensate with a decrease in the hydroelectric plant. Then we are expecting an EBITDA of 85% or 88% in the case of the pipeline. And in the case of the hydroelectrics, all depends on the situation of the pricing and the water levels in the region that we face in this year.

Okay. I'm sorry, one more, if I may, Arturo, on Elementia. I was surprised by the sale of the plant. What is your strategy in the Fortaleza in the cement business? I mean you're going to be left out with a smaller plant in the U.S. Are you planning to divest those assets and focus entirely on Mexico? And on Mexico, what is your current capacity with all the expansions that you've made in -- since you took over this subsidiary? And where are you -- where do you want to take the capacity in the next 2, 3 years if you guys have an objective or a target?

Important to say, Alejandro, the sale in the U.S of the Giant plants were most -- were more strategical projects because we were having not the best results in that plant in the U.S., and the company that is purchasing that plant is a company that has an important presence in the U.S. Then for us was a good opportunity to sell. I think is a very good price that we are obtaining that upon because we were having $25 million, $28 million EBITDA per year then I think was a very good deal. And on the other hand, we are -- we want to concentrate in Mexico and in the rest of LatAm. As you know, we have, in the case of cement, we have in Latin, Salvador and Costa Rica. And in Elementia business, we are in Ecuador, Bolivia, Colombia, et cetera, Honduras, et cetera. Then we are going to concentrate in Mexico and in the rest of LatAm. We are going to decrease the volume this year because of the sale of [the Giant], but we are going to increase our margin. That is our goal for this year and to continue the increase of our capacities with that money. That is the plan, Alejandro.

Okay. Great. And on Mexico, Arturo, if you can comment on the -- your state -- your current capacity after -- I don't know if you made some debottleneckings. Are you planning to add additional capacity in Mexico?

I don't have now the final numbers, Alejandro, but let me to -- confirm that, and I can share.

Okay. What's your view on cement Mexico, Arturo, for this year?

Maybe the last quarter, maybe the last 2 quarters, we were seeing an increase of the demand in Mexico. I mean the construction, not just in cement, but in cables and other products that we save for the construction division. And it seems that we are recuperating the demand in that kind of product. We are confident about the next quarter because we are seeing new plans from the government in order to win infrastructure projects, et cetera. And as you know, we are in CICSA, have important private projects such as hospitals, more shopping centers, et cetera. We are consuming our own cement. We think we have a good opportunity to increase our demand in Mexico. We are seeing good signals about that.

[Operator Instructions] For the moment, there are no additional questions. So we will end this conference call, and we look forward to speaking with you again. Thank you, and have a good day.