UNACEM Corp S.A.A. (UNACEMC1) Earnings Call Transcript & Summary

Okay, UNACEM team. I think we're ready. Good morning to everyone, and welcome to UNACEM's Fourth Quarter of 2020 Earnings Conference Call. This morning, we have Pedro Lerner, our CEO, who will be presenting a brief summary of the most important event of this year and the results of the fourth quarter of 2020. As always, we will have Alvaro Morales, UNACEM's newly appointed Corporate VP of Finance, who will be in-charge of presenting this quarter's and 2020's financial result. In the end, we will open for a Q&A. [Operator Instructions] Please note that we might disclose some forward-looking statements that should be considered for reference only. We will also be recording this call. Let's get started with the presentation. Pedro?

Thank you, Francisco, and welcome, everyone, to this call. As you all know, 2020 was arguably the most challenging year of UNACEM's history. The global pandemic had an important impact on the countries that we operate. The health issues were followed by economic crisis as contiguous and deaths escalated across the globe. With continued support of all our stakeholders, that is employees, communities, suppliers, clients, shareholders, financial institutions and authorities, we were able to navigate through all the challenges that showed up and to deliver strong results for UNACEM. As we will hear later from Alvaro, UNACEM has proven its resiliency even in the most daring year we can remember. Political turmoil wasn't absent from this equation. In that sense, during the last quarter of the year, we also witnessed the troublesome election in the U.S. and impeachment process of the Peruvian President, Martín Vizcarra. He was succeeded by Francisco Sagasti after 1 week of continued uncertainty, including a brief President that lasted only 3 days. On the economic front, December was the first month showing a positive GDP growth of 0.5% after 9 months of negative rates, as reported by the National Institute of Statistics, INEI. For the year, Peru's GDP decreased 11.1%, better than estimated by UNACEM a few months into the year. However, we expect that the next year, the economy should grow at double rate digits and -- at a double-digit rates as announced by top economists in the country. During the year, the most affected sectors were hotels and restaurants, minus 50.5%; transportation, minus 26.8%; and cars, minus 16%. Telecom, 4.9%; fishing, 2.1%; and agriculture, 1.3% were the outliers that registered positive growth. Even though the construction sector recovered sharply during the last 4 months of 2020, the sector was down 13.9% for the year as expected. The recovery plan implemented by the government and an expansive fiscal and monetary policy were among the reasons why this sector has been performing well. UNACEM took advantage of the situation, and dispatched cement at its historic highs in October and November. Our bagged cement clients through our Progresol network were the leading channels through which we delivered our products to the market. In that regard, our cement dispatches grew by 14.5% in the fourth quarter of 2020, but decreased by 16.1% in the whole year for the reasons explained above. Our subsidiaries also performed fairly well. Ecuador and the U.S. delivered strong quarterly results, both in terms of volume and prices, and CELEPSA also improved its revenues. Nonetheless, UNICON and Concremax are still aiming at a recovery during 2021. Another news at the end of the year, we purchased 100% of the shares of Cementos La Unión in Chile. We have recently obtained the go-ahead from the local antitrust authorities, so we're in the process of assuming control of the operation. This transaction included the acquisition of a 300,000 metric ton cement grinding facility, ready-mix operations and pozzolana quarries. We have been acquainted with Cementos La Unión for many years since they were important clients of our exported clinker. The incorporation of this company to the UNACEM family will bring important synergies, will increase our footprint in Chile and will consolidate our current operations of ready-mix and precast concrete structures in that country. We're excited to have Cementos La Unión in our organization. In some other administrative matters, organizational matters, I would say, we have recently appointed 3 new corporate [ heads ] in finance; talent, talent and culture; and operations, industrial operations. This would be our first step towards a corporate structure. And we will keep you posted on future developments regarding this. Also, in our February Board meeting, we summoned a general shareholders meeting, which will take place on March 16. I hope to see you all there. And that would be all on my side. Thank you very much for your attendance this morning. And I will now pass it over to Alvaro for a detailed analysis of our financial results. Thank you very much.

Thank you, Pedro. Good morning, everyone, and thank you for joining us today. Despite the challenging environment due to the pandemic of the COVID-19 that we faced in 2020, I am glad to go through the highlights for the fourth quarter as well as for the full year consolidated results. Our consolidated revenues during the fourth quarter of 2020 increased by 16.2% versus the fourth quarter of 2019, driven mostly by: first, 14.5% higher cement dispatches in Peru in the quarter with better average prices; second, higher cement and ready-mix dispatches in Ecuador; and third, Skanon also recorded higher cement, ready-mix and aggregates volumes dispatch. Full year consolidated revenues decreased by 11.6% compared to 2019. This was driven mostly by the stoppage of operations due to the measures taken by the governments in the countries where we operate to face the COVID-19 pandemic, which resulted in lower cement volumes sold in Peru, net from higher average prices; lower cement volume in Ecuador; lower ready-mix dispatches in Peru, Ecuador and Chile; lower energy volumes in CELEPSA; partially offset by higher volumes in Skanon with higher average prices. In Peru, UNACEM Cement dispatches recorded a 16.1% decrease in 2020 compared to 2019 as a result of the stoppage of operations in the second quarter. Nevertheless, as Pedro mentioned, we had seen a strong recovery of our dispatches in the last quarter, driven by our back unit. Likewise, clinker export recorded 521,000 tons, 25.1% lower than the 709,000 tons recorded in 2019. Ready-mix dispatches reached 2.3 million cubic meters compared to the 3.7 million cubic meters in 2019, 38.6% lower. In 2020, our ready-mix companies in Peru dispatched 1.6 million cubic meters, lower by 42.2% than the 2.8 million cubic meters dispatched during 2019. The recovery of its client has been sluggish as they are related to the infrastructure and private sector investments. However, UNACEM and Concremax maintained their leadership in the market and restart supplying important projects in our area, such as Mina Justa, Jorge Chávez Airport expansion and Chancay Port project. Regarding UNACEM Ecuador, cement volumes recorded 948,000 tons sold, lower by 13.6% than in 2019. CELEPSA, energy sales reached 1,352 gigawatts, lower 50.4% than in 2019, mainly due to lower demand from its contracted clients, including UNACEM's stand-alone and Electrodunas. Skanon closed the year recording 330,000 short tons of cement sold, a figure 60.2% higher than in 2019 with new records of production and dispatch. As a result of this, our U.S. operation recorded an EBITDA of $23.4 million compared to $17.7 million achieved in 2019. Regarding consolidated cost of goods sold, they were 21.5% higher in the fourth quarter of 2020. Full year consolidated cost of goods sold were 6.7% lower in 2020 compared to 2019, explained by lower volumes sold and the impact of fixed cost of the atypical operating levels due to the measures taken by the governments in the countries where we operate. Our gross margin was 23.4% compared to the 27.4% registered in 2019. Our administrative expenses in the fourth quarter were 19.7% lower than in the fourth quarter of 2019. Selling expenses in the quarter were 16.4% lower. Full year administrative expenses in 2020 were 13.6% lower, and selling expenses were lower by 20.2% than in 2019. In both cases, the decrease is a result of the preventive and extraordinary actions taken by all the group companies to face the COVID-19 pandemic. In the fourth quarter, other income were 61% lower, mainly due to an extraordinary dividend declared in the fourth quarter 2019 by our investment in Ferrocarril Central. Other expenses were 6.8% lower than in the fourth quarter of 2019. For the full year, other income were 52.8% lower. In addition to the extraordinary dividend of Ferrocarril Central, in 2019, there was a nonrecurring income from the sale of ready-mix trucks in Skanon. Other expenses during 2020 were PEN 87.9 million, a higher figure than that PEN 39.6 million recorded in 2019, mainly due to accounting adjustments due to the suspension of the Atocongo thermal plant project and the Cristina mining concession integral project in 2020. For the reasons explained before, our consolidated operating profit in the quarter was PEN 202 million, 10.5% higher than in the fourth quarter of 2019. Full year consolidated operating profit was PEN 450 million, lower by 39.8% than the PEN 748 million recorded in 2019. The consolidated EBITDA in the quarter was PEN 331.4 million, a figure 6.3% higher. 2020 consolidated EBITDA was PEN 923.2 million, 24.4% lower than the PEN 1.2 billion reached in 2019. This decrease is mainly explained by lower cement volume and exports, net from higher average prices in Peru; lower ready-mix volumes in Peru, Ecuador and Chile; lower volumes of energy sold in Peru; lower cement volumes sold in Ecuador. This is net from higher cement, ready-mix and aggregates volumes sold in the United States with better average prices. EBITDA margin was 25.5% for 2020, lower than the 29.8% EBITDA margin in 2019, as noted before, mainly due to the atypical operation levels of the year. Consolidated net debt was PEN 3.9 billion, lower than the PEN 4 billion at the end of 2019, despite that we acquired short-term loans to guarantee liquidity and working capital during 2020. Therefore, the net debt/EBITDA ratio was 4.2x at the end of 2020, 3.3x in 2019. During 2020, we continued servicing our long-term debt as scheduled. As previously reported, last January, we executed a refinance of PEN 1.2 billion with 3 local banks at UNACEM stand-alone. This transaction has improved our debt profile for the next year, reducing also our average financial costs. Financial expenses were 28.9% lower in the quarter. In the last quarter of 2019, we had a nonrecurring expense related to the premium rate for the remaining redemption of the senior notes program. Full year financial expenses were 13.5% lower than in 2019, explained by lower average interest rate in UNACEM stand-alone and the premium rate mentioned before. Foreign exchange in the quarter turned from a PEN 20 million gain in the fourth quarter of 2019 to PEN 2 million loss in the fourth quarter 2020. Full year exchange registered a loss of PEN 61 million versus a gain of PEN 22.2 million in 2019, mostly by the conversion of U.S. dollar-denominated debt to sols and a higher FX rate in the year. Net profit in the quarter was PEN 106.3 million. Full year net profit was PEN 114.8 million versus PEN 353 million during 2019, due to the factors mentioned before. In terms of CapEx, disbursements were 15.7% lower, prioritizing only those projects in execution and those required to guarantee smooth operations. These disbursements correspond to minor projects across all the companies, including works in the control system of Kiln 2 at the Condorcocha plant; a structural reinforcement in the chamber 3 of the multi-silo in the Atocongo plant; the acquisition of new mixer trucks and the new grinding project in Skanon; and overhaul of several equipment, among others. Thank you. That will be all from my side. Now we open up for your questions. Thank you very much.

Thank you very, Pedro and Alvaro. This is the presentation that we had for you. [Operator Instructions] Okay. We have a question for Alvaro. And this is regarding our operations in Skanon in the U.S. Alvaro, Francisco Suarez from Scotiabank is asking about the contract that we have with CPC -- with California Portland Cement. He wants to know how much of our capacity is contracted through this agreement? What is the gap between the current price and the agreed price in the contract? And when the contract expires? Alvaro?

Thank you, Francisco. Thank you for the question. In the case of the contract with CPC, at the end of 2020, the contract that we have to serve that was 175,000 short tons of cement per year was finished. And we make for this 2021 year, a renewal of only 100,000 short tons. The price for the new renewal is a full price, market price. So we are in a very good position with this contract. Also, our capacity is around 700,000 short tons per year. So that -- this contract represents more or less 15% of our capacity.

Thank you, Alvaro. We have another question coming from Steffania. Thank you for your question. Alvaro, she's asking about guidance of cement dispatches that we are expecting from infrastructure products in Peru.

Well, we are not allowed to give guidance because it's not fair for all the investors. But the idea is that we have to think that last year, we stopped our operation for 65 days. Only 65 days represent 18% in a year. So if we see that line 2 of Metro Lima is working better than last year; the Jorge Chávez Airport project, that started this year, and the preliminary works in the Chancay Port project, we expect to have a better infrastructural demand for this year.

Perfect. Thank you, Alvaro. As a follow-up question from that. [indiscernible] is asking, what is our perspective for the construction sector for 2021?

Well, we are -- we read in the newspapers that the government is trying to promote the social housing with the 2 programs they have, Techo Propio and Mi Vivienda. They expect to have a record of loans for these 2 programs for this year that this is going to dynamize the housing construction. Also, we -- for this year, we are looking the expansion of the Metropolitano. For us, it's very important because the road is concrete, a concrete road. So for us, it's a very good possibility for this year. And with the investment in Jorge Chávez, in Chancay and the Metro, the Line 2 of Metro, we expect a good recovery for this year.

Thank you very much, Alvaro. I would just like to follow up on the last 2 questions. We are excited about 2021. We finished the year 2020 very strongly. As we mentioned, self-construction was very, very strong. And the perspective that we have on infrastructure products, as Alvaro mentioned, in terms of the airport, in terms of the Lima Metro and new projects that should be coming now, appear to be a good year. On the difficult side, I would say that the elections in the -- during the first and part of the second quarter can bring some volatility. This is why we are not giving guidance right now in terms of cement dispatches. And also how the government will manage the COVID-19 virus and the vaccination process in the months to come. So we have another question for Pedro. And it's regarding our strategy. It comes from Francisco Suarez from Scotiabank. And he's asking that -- he's conceiving us as potentially adding new grinding mills along the Pacific and if this is a possibility? Pedro?

Thank you, Francisco. I don't know how much freedom I have to discuss the strategy here. But what I can say is that we have no specific plans or concrete plans or -- to implement grinding facilities in the foreseeable future. So this is always a possibility. I would say this is not likely in the short term since we don't have any prospects in our portfolio at this point.

Thank you, Pedro. We have another question from [ Enrique ] [indiscernible]. [ Enrique ] is asking about if we expect further irregular operations that could still negatively impact our margins in 2021? I will pass this question to Alvaro. But as we mentioned before, there are a couple of factors that can bring volatility, the elections and how the government will manage the COVID-19 pandemic and the vaccination process. Alvaro?

Yes, I agree with you, Francisco. The risk for 2021 are those what you mentioned, elections and how the government manage the pandemic and the vaccine. So for us, it's a very challenging year also. I can say that we started very well in the first 2 months of the year, expecting that we can keep our actual levels, demand levels. And if we can achieve that, it's going to be a good year for us.

Great. Thank you very much, Alvaro. That's the last question that I have on the chat right now. I can give you 1 more minute, if you plan to ask another question. Or otherwise, as we can see on the screen, we have the e-mail for IR Officer, if you can -- if you want, you can also ask through. Okay. At this point, we don't have any more questions. Thank you all for joining us this morning. And as I mentioned, please stay in contact with us, with me, with Monica. Our e-mail is down here in the presentation. And please stay in touch. Hopefully, we'll see you on March 16 on our shareholder meeting. Thank you very much, and have a good day.

Thank you.