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

Okay. Good morning, everyone, and welcome to UNACEM's Second Quarter of 2021 Earnings Conference Call. This morning, Pedro Lerner, our CEO, will discuss the latest developments that affected our country and industry during the first half of the year. Later on, Alvaro Morales, UNACEM's Corporate VP of Finance, will present the second quarter as well as the first semester of the year financials in detail. In the end, we will open up for Q&A. We encourage you to send your questions through the chat option. And I will be organizing them for proper [indiscernible] Please note that we might disclose some forward-looking statements that should be considered for reference only. [ Pedro ], let's get started.

Thank you, Francisco, and welcome, everybody, to a new quarterly report of our firm. Once again, the political reality in Peru exceeded the most absurd scenarios that could be foreseen. On the elections, we elected the underdog of the presidential run. Mr. Pedro Castillo was a school professor from a rural community that escalated the Teachers Union ladder to become presidential candidate for a radical left party Peru needed. These voters represented discontent of the less favored classes in our country, desperate to survive the global pandemic and tired of widespread corruption in the government. We're cautiously watching over the political, economical and social measures that the government is taking under the principles of freedom, democracy and institutionality, hoping for the best in the next 5 years. Regarding the global pandemic, the government succeeded in deploying vaccines for many people, but we still have a long way ahead. The third wave of contagion is at a strict corner, and we keep implementing the measures to safeguard our people and our business. Thankfully, the industries and businesses where we operate performed successfully during the quarter. From a macroeconomic point of view, Peru grew an impressive 20.9% in the first semester of the year, showing a strong recovery from last year's nationwide lockdown. This recovery was led by the construction sector that delivered 100.7% growth in the semester, accelerated by both economic incentives taken by the former government and private investment mostly in self-construction. Other sectors that performed well are manufacturing and commerce, growing 36% and 33.4%, respectively. UNACEM outperformed our own projections once again. In terms of volume dispatch in Peru, we recorded an increase of 90.5% compared to last year's first semester with an efficient utilization of our plants. Likewise, our consolidated EBITDA margin grew 2.8 percentage points to 29.4% vis-a-vis the same period of last year, with an increase of 40.4%. Furthermore, our cash balance is still at historical highs, driving our net debt to EBITDA down to 2 point x -- 2x -- 2.8x, a level that reflects our [ promise ] with financial discipline. As a consequence, S&P revised its credit rating out of UNACEM to stable from negative, and affirmed its EB global scale issuer credit rating. These impressive figures are the result of external factors but also internal policies based on discipline, efficiency dictated on the early stages of the pandemic, and executed thoroughly by our collaborators. The Board and I recognize the hard work of our organization and team [ power ]. Our subsidiaries in Peru, Ecuador and Chile also performed above its patients, growing at very fast rates across the board. Skanon was exceptional, showing negative results for cement and ready-mix volumes, but compensated by higher prices that drove positive revenue growth of 8.6%. In some administrative matters, we held an extraordinary shareholders' meeting in order to approve the registration of a new local corporate bond program for up to PEN 1.2 billion. The idea is to have the alternative to issue corporate bonds in the local market when the conditions are appropriate and when the company requires the fund. This doesn't mean that we will be approaching the market any time soon. That would be all on my side. Thank you very much for your attendance this morning. And now I'll pass it over to Alvaro for a detailed analysis of our financial results.

Thank you, Pedro. Good morning, everyone. I will go through our second quarter results as well as our first half of the year consolidated financial detailed analysis. Our consolidated revenues during the second quarter increased by 132% compared to the second quarter of 2020. This increase is explained by the strong recovery of cement and ready-mix volumes sold across all business units in Peru, Ecuador and Chile and solid results in the U.S. Please take note that between mid-March and May 2020, operations in Peru and Ecuador were interrupted due to the measures taken by the government as a result of the COVID-19 pandemic. In Peru, UNACEM cement dispatches recorded 1.4 million tons, a 222% increase compared to the second quarter 2020. In comparison with the first quarter 2021, cement dispatches were slightly lower by 1.1%. Our back cement unit kept solid and resilient to the turbulence of the political environment, and our bulk unit has improved its volume dispatch during the quarter as well. Moreover, clinker exports through our Conchan pier recorded 206,000 tons. In the second quarter 2020, there were no exports through our Conchan pier due to the repair work in the chip loader executed until July 2020. In the first half of the year, cement dispatches were 91% higher than in the first half of 2020. As noted at the beginning of the third quarter 2020, we started seeing a strong positive trend where monthly dispatches were even higher than in 2019 before the pandemic. All of this translated in better revenues at UNACEM stand-alone. During the second quarter 2021, our ready-mix unit dispatched a total of 819,000 cubic meters, representing an increase of 304% versus the second quarter 2020. These results include our plans in Ecuador, Peru and Chile that include the newly acquired 2 batch plant operations in Santiago. In the second quarter 2021, our ready-mix companies in Peru, UNICON and Concremax, recorded 584,000 cubic meters dispatch, a figure 731% higher than the second quarter 2020. In the first half of the year, both UNICON and Concremax dispatched 1.1 million cubic meters of ready-mix, maintaining their leadership in the industry. Volume recovered this year driven -- volume recovered this year driven by private investment. Regarding UNACEM Ecuador, volume during the second quarter increased by 140%, with 314,000 tons sold compared to the 131,000 tons sold in the second quarter 2020. Likewise, during the quarter, UNACEM Ecuador revenues in dollars increased by 137% versus the second quarter 2020 due to lower average prices. As of the first half of 2021, volumes in Ecuador were 70% higher recording 596,000 tons versus 351,000 tons in the first half of 2020. Even higher than in the -- sorry, even higher than in 2019 when recorded 547,000 tons. EBITDA margin as of the first half 2021 was 44.7% compared to the 40.9% as of the first half 2020, an important improvement compared to recent years. CELEPSA recorded a 69% increase on its revenues in the second quarter 2021. Energy sales reached 396 gigawatts, an increase of 69%, explained by higher demand from third-party contracted clients, including UNACEM stand-alone. As of the first half 2021, CELEPSA revenues were 37% higher, with a total volume sold of 799 gigawatts, 33% higher than in the first half of 2020. Drake Cement recorded 170,000 short tons of cement sold during the second quarter 2021 versus 197,000 short tons in the second quarter 2020, a figure 40% lower. This decrease in volume was compensated with higher average prices during the period, around $105 per short ton of cement. On a cumulative basis, as of the first half of 2020, dispatch reached 353,000 short tons versus 364,000 short tons in the first half of 2020. Regarding the consolidated cost of goods sold, they were 91% higher in the second quarter 2021 compared to the second quarter 2020, explained by: higher cement ready-mix volumes sold in Peru and Ecuador and higher energy sold; higher cost of goods sold in the same standalone due to maintenance of 1 of the kilns in the period and the impact of higher effects in natural gas and energy. For the reasons explained before, our gross margin was 25.9%, higher than the 10.4% reached in the second quarter 2020. Considering that last year, between mid-March and May, operations in Peru and Ecuador were interrupted. Additionally, in the first half 2021, gross margin was 28.6% compared to the 21.3% in the first half of 2020. Our administrative expenses in the quarter were higher by 57%, mainly due to higher mandatory workers' profit sharing in UNACEM stand-alone and higher donations. Selling expenses recorded PEN 27.8 million, 66% higher, mainly due to higher marketing expenses in UNACEM stand-alone and UNACEM Ecuador. Other income and expenses during the second quarter 2021 show an important change. Please take note that in the second quarter 2020, the disposals of assets for approximately PEN 57 million related to the suspension of the Atocongo thermal plant and the Cristina mining concession projects was recorded. As of the first half of 2021, administrative expenses were higher by 34% compared to the first half of 2020, mostly explained by workers' profit sharing and donations. Selling expenses were higher by 25% during the first 6 months vis-a-vis 2020 due to higher marketing and advertising expenses as stated before. It's important to highlight that SG&A expenses in 2020 were lower as a result of the preventive and extraordinary actions taken by all the group's companies during the global pandemic to reduce its impact. For the reasons explained before, our consolidated operating profit in the second quarter 2021 was PEN 198 million, a figure 376% higher than in the second quarter 2020. As of the first half of the year, consolidated operating profit was 437% higher compared to the first -- first half of 2020. The consolidated EBITDA for the second quarter 2021 was PEN 337 million versus PEN 43 million in the second quarter 2020. Last 12 months EBITDA was PEN 1,344 million, higher than the PEN 928 million of last year same period. Last 12 months, EBITDA margin was up to 29.4% from 26.6% in 2020, mainly due to normalized operations. Consolidated net debt was PEN 3.7 billion compared to the PLN 3.9 billion as of the end of 2020. Therefore, the net EBITDA ratio was 2.8x, showing an important improvement in our leverage levels. During the first half of the year, we have been amortizing our debt according to schedule. Gross debt in soles increased due to the FX conversion impact of the U.S. dollar-denominated debt. Cash registered a record of PEN 854 million. Financial expenses were lower by 12.5% in the quarter and 6.4% in the first half of the year due to the liability management process executed at the beginning of the year. Foreign exchange registered a loss of PEN 17 million in the second quarter 2021 versus a loss of PEN 23 million in the second quarter 2020, mostly explained by the devaluation of the Peruvian local currency . In the first half of the year, a foreign exchange loss of PEN 37 million versus a loss of PEN 49 million in the first half of 2020 was recorded. Net profit in the quarter was PEN 88 million during the second quarter 2021 versus a loss of PEN 115 million during the second quarter 2020. Net profit was PEN 301 million in the first half 2021 versus a loss of PEN 44 million in the first half of 2020 for the reasons explained before. In terms of our ongoing investments as of the first half 2021, disbursements correspond to minor projects across all the companies, including work in the control system of kiln #2 at the Condorcocha plant, structural reinforcement in the chambers of Atocongo's multi silo, the new grinding mill in Skanon, and overhaul of equipment, among others. Thank you. That will be all from my side. Now we open up for your questions. Thank you, Francisco.

Thank you, Alvaro. And as I posted on the chat, you can send your questions to this platform, and I will organize them for a proper answer. Please, let me know if you have any questions. We'll give a couple of minutes for you to think of your questions. Okay. We have a couple of questions. The first question is from [ Enrique Arao ]. Enrique, thank you for your question. And this question is for Alvaro Morales. Alvaro, the question is, what are we planning to do with our cash?

Thank you, Enrique, for your questions. The idea we will continue paying debt in order to deleverage the group. Our cash -- we need to reduce more our debt level, so cash is going to be for reduce it.

All right. Thank you, Alvaro. The second question is from María-José Quiñones. Thank you, María-José for your question. And it's regarding -- María-José is asking for the specific efficiencies in cost reduction that we have experienced during this year -- during this quarter. Alvaro, I think I can pass it over for you, and then I can complement.

Yes, can you repeat the question, please? You're...

Yes. What were the cost efficiencies that we experienced during this quarter?

[Foreign Language]. It's María-José Quiñones -- that we experienced during this quarter. Maybe, Francisco, you can explain our [ Ruri ] project, where we are really making the efforts to reduce our cost. But before that, we continue in austerity in all the companies of the group in order to keep cash for the companies. That's why we have this very high level of cash in the group. Francisco?

Yes,. I would like to complement a couple of things. The first is that we have experienced during this quarter, a very efficient performance of our kilns. And as you know, when our kilns are operating smoothly, the performance of our costs improve a lot because of the dilution, of fixed cost dilution. The second thing that I would like to mention is that we have a program that was implemented early during the pandemic last year. We developed almost 31 initiatives in order to improve the -- very, very well. So this -- I think that these 2 things or these 2 activities are the ones that affected the most on cost efficiencies in the last quarter. Okay? Thank you, María-José, for your question. We have another question from [ Shannon Rios ]. Shannon, thank you very much for your question. Appreciate the congratulations on the results. Shannon would like further detail on the increase on administrative costs. Alvaro, maybe you can tell us what happened with that?