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

Okay. Great. Good morning, everyone, and welcome to UNACEM's Fourth 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 fourth quarter of the year. Later on, Alvaro Morales, UNACEM's Corporate VP of Finance, will present the fourth quarter financials in detail. In the end, we will open up for Q&A. As you will hear during the presentation, we have undergone a simple reorganization in the company. As part of this process, I will be in charge of that UNACEM's Peru's financials, leaving the IR leadership to Monica Paucar. Therefore, in the next meeting, she will take over as your host. Fortunately, you all know Monica, and we are sure that she will succeed in this important task. Please join me in welcoming Monica to this community. On some of the restrictive matters, we encourage you to send your questions through the chat option, and I will be organizing them for a proper answer. Please note that we might disclose some forward-looking statements that should be construed for reference only. We are also recording this call. Pedro, let's get started.

Thank you, Francisco and all the best in your new role. And wish you success, and welcome Monica to the team. As mentioned, during the fourth quarter of the year, we performed a simple reorganization that creates 3 wholly owned subsidiaries with UNACEM's assets; INMA that will receive -- that received all noncement-related real estate assets; Minera Adelaida that holds all non-cement mining concessions; and UNACEM Peru, a newly formed company that operates all Peruvian cement assets. Therefore, UNACEM has become UNACEM Corp., a pure holding company. And UNACEM Peru will solely be in charge of producing and commercializing cement in Peru. We will keep reporting financial results on a quarterly basis for both, UNACEM Corp. and UNACEM Peru, with a high corporate standards that we are used to. Our goal with this new structure is to support a long-term value generation strategy for all our stakeholders and align our operating business units. We will focus on the development of human challenge and the transformation process of the group. And we're currently working on a 4-year strategic plan for the group and our Peruvian operations. As for the company's fourth quarter performance, I will mention that this was a record quarter for us. October registered the highest monthly cement dispatches in Peru, showing a strong recovery post-COVID-19 pandemic. We generated cash flows to comply with our debt implications, driving our net debt-to-EBITDA levels below 3x, one of our medium term targets. We were able to deliver these results in a highly volatile environment, political and social unrest in Peru, the presence of a third wave of COVID contagions and rising global inflation and foreign exchange risks were among the obstacles that we had to face. On the other hand, local demand for bags mostly provided with tailwinds that we needed in order to succeed in our market. In that sense, the construction GDP grew by 34.7% during the year, only outperformed by the hospitality sector that grew impressively on the last quarter. The Peruvian GDP grew by 13.3% as reported by the Instituto Nacional de Estadística e Informática, INEI. As mentioned before, this growth is explained mostly by the self-construction sector since public and private investments have been lagging. This growth also shows important price increases of 15.4% for construction materials versus 6.4% consumer price index nationwide during the year. We are watching closely the market dynamics in order to maintain our long-term competitivity. Our production and commercial teams along with all the firm managed to deliver under pressure. I'm proud of our team's performance working on a highly competitive environment. Our subsidiaries also posted impressive results during the quarter and the year. UNICON, Celepsa and UNACEM Ecuador recovered to levels higher or close to those of 2019, proving the resiliency of our diversified portfolio of companies. Skanon also reported impressive results despite some climate issues in the state of Arizona in the second half of the year. It is worth mentioning that during the fourth quarter of the year, we successfully acquired our second grinding facility in Chile, doubling our production capacity in that neighboring country. The transaction adds 300,000 tons of milling capacity in the central region of Chile near the Port of San Antonio, some 8 kilometers away from our San Juan plant. We're excited to be in Chile and continue diversifying our portfolio of companies. In some administrative matters, our Board approved the extension of our stock buyback program that will go until June 30, 2022. As of December, we were able to buy back 7.3 million shares using our cash smartly. I would also like to announce that our Board has summoned for a shareholder meeting to be held on March 30, 2022. There, we will discuss the year's financials. We will elect the new Board members and review our ESG strategy. You're all invited. I hope to see you there. That will be all on my side. Thank you very much for your attendance this morning. And now I will pass it over to Alvaro for a detailed analysis of our financial results.

Thank you, Pedro. Good morning, everyone, and thank you for joining us today. As Pedro mentioned, this quarter, we registered records in performance that allowed us to have outstanding financial results. 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 2021 increased by 24% versus the fourth quarter of 2020, driven mostly by higher volumes across the board, 7.6% higher cement dispatches in Peru with better average prices, 8.3% higher cement dispatches in Ecuador. Consolidated ready-mix dispatches were 13% higher. Skanon also recorded 1.9% higher cement dispatch and 5.2% in ready-mix. Full year consolidated revenues increased by 41.7% compared to 2020. Please take note that in 2020, we had a complete stoppage of operations in Peru and Ecuador for more than 60 days due to the initial measures taken by the pandemic. Nevertheless, it is worth mentioning that comparing to 2019, consolidated revenues were 23.6% higher. In Peru, UNACEM cement dispatches recorded a 39.7% increase in 2021 compared to 2020, recording a historical record quarter of 1.7 million tons of cement dispatched. While self-construction drove growth, likewise, clinker export recorded 707,000 tons, higher than the 310,000 tons recorded in 2020. Consolidated ready-mix dispatches reached 3.4 million cubic meters compared to the 2.3 million cubic meters in 2020, 47% higher, a strong recovery during the year. Compared to 2019, ready-mix volume was 9.8% lower with 3.7 million cubic meters. In 2020, recovery in these business units took longer than in cement since the market was sluggish mainly due to the adaptation of a new rate of work and the lower execution of infrastructure projects in the public and private sector. In 2021, our ready-mix companies in Peru dispatched 2.3 million cubic meters, higher by 46% than the 1.7 million cubic meters dispatched during 2020. UNICON and CONCREMAX maintained their leadership in the market, supplying the most important projects in our area, such as the Line 2 of the Lima Metro, Jorge Chávez Airport expansion and Chancay port. Regarding UNACEM Ecuador, cement volumes rose 1.3 million tons sold higher by 34% than in 2020 and 16% than in 2019. Celepsa energy sales reached 1,698 gigawatts, higher 26% than in 2020 and 6% higher than 2019, mainly due to higher demand from its contracted clients, including UNACEM stand-alone, which represents 29% of its sales. Skanon closed the year recorded 638,000 short tons of cement sold, a figure 30% lower than in 2020. Volumes were down due to a particular monsoon that hit the state really hard with heavy rains and storms. Compared to 2019, cement sold was slightly higher by 1.5%. In spite of lower volumes sold, average cement prices was 3% higher and ready-mix price was 9% higher. Stronger pricing allows Skanon to offset volume decline, reaching a top line growth of 5.1%. Consolidated cost of goods sold were 15.2% higher in the fourth quarter 2021. Full year consolidated cost of goods sold were 30% higher in 2021 compared to 2020, explained by higher volumes sold with the corresponding dilution of fixed costs. Our gross margin was 30% stronger than the 24% of 2020 and better than the 27% reached in 2019. Our administrative expenses in the fourth quarter were 38% higher than in the fourth quarter of 2020. Selling expenses in the quarter were 15% higher than in the fourth quarter 2020. Full year administrative expenses in 2021 were 31% higher, 13% higher compared to 2019. And selling expenses were higher by 23% than in 2020, 1.3% lower versus 2019, explained by higher workers' profit sharings, Board fees and donations UNACEM's stand-alone that were hired during the year, added to a higher marketing expense and advertising. In the fourth quarter, other income were similar than in the fourth quarter of 2020. Other expenses were 195% higher than in the fourth quarter 2020, mainly due to tax claims payments in UNACEM stand-alone and extraordinary tax payments in UNACEM Ecuador for COVID contribution. For the full year, other income were 139% higher due to the extraordinary dividend received from Ferrocarril Central Andino. Sale of mix extracts in Skanon and a noncash income recorded due to the badwill from the acquisition of UNACEM Chile and Mel. Other expenses during 2021 were 9% lower than in 2020. It is worth mentioning that in 2020, adjustment due to the suspension of the Atocongo thermal plant project and the Cristina mining concession project were accounted in UNACEM's stand-alone. For the reasons explained before, our consolidated operating profit in the quarter was PEN 287 million, 43% higher than in the fourth quarter 2020. Full year consolidated operating profit, PEN 1,061 million, is higher by 137% than the PEN 448 million recorded in 2020. Operating profit was 42% higher than in 2019 when recorded PEN 748 million. The consolidated EBITDA in the quarter was PEN 417 million, a figure 26.5% higher. 2021 consolidated EBITDA was PEN 1.5 billion, 67% higher than the PEN 922 million reached in 2020. EBITDA was 26% higher than in 2019 when it recorded PEN 1.2 billion. The increase in 2021 EBITDA is mainly explained by higher cement volume and clinker export with higher average prices in Peru, higher ready-mix volume in Peru and Chile, higher energy sold in Peru, higher cement volumes sold in Ecuador, higher industrialized concrete structures in Peru. EBITDA margin was 30.4% for 2021, higher than the 25.8% EBITDA margin in 2020 when we experienced very atypical operating levels of the year due to the pandemic. Furthermore, EBITDA margin was higher than the 29.8% recorded in 2019. Consolidated net EBITDA was PEN 3.5 billion, lower than the PEN 3.9 billion at the end of 2020. During the year, we continued with our debt amortization according to schedule and made prepayments of long-term debt in UNACEM stand-alone. Therefore, the net debt-to-EBITDA ratio was 2.3x at the end of 2021, down from 4x at the end of 2020. Our leverage ratio fell within our medium-term target. As previously reported, in January 2021, 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 6% higher in the quarter. Full year financial expenses were 1% lower in 2020, explained by lower average interest rates, mainly in UNACEM stand-alone. Foreign exchange in the quarter turned from a PEN 2 million loss in fourth quarter 2020 to a PEN 9 million gain in the fourth quarter 2021. Full year foreign exchange registered a loss of PEN 64 million versus PEN 61 million in 2020, mostly by the conversion of U.S. dollar-denominated debt to soles and a higher FX rate in the year. Net profit in the quarter was PEN 183 million. Full year net profit was PEN 576 million versus PEN 116 million during 2020 due to the factors mentioned before. Compared to 2019, net profit was 63% higher. In terms of CapEx, disbursements totaled PEN 342 million, 52% higher. Main investments correspond to mining projects across all our companies, including works in the control system of Kiln #2 at the Atocongo plant -- at the Condorcocha plant, sorry. Structural reinforcement in the Chamber 1 and 3 of the multisilo Atocongo. 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.

[Operator Instructions] Okay. So we have a question now from Bianca Venegas. This question is regarding our view of the self-construction and infrastructure segment in Peru, I understand. Considering the low public and private investment as well as a lack of execution on the government side, what are we expecting for the first quarter of 2022? Alvaro?

Okay. Yes. Well, we are continuing in a very volatility environment, so making projections is really hard. But the idea is that we are considering for our budgets to be in a small contraction regarding 2021. Because as Pedro mentioned, the cost of the construction materials has increased very, very importantly, and we think that's going to affect the self-construction sector. Other is the public and private investment that we all expect that it's going to be lower than 2021. So we are hoping that we can be not too far from 2021 in terms of volumes and trying to repeat or maintain our results of 2021.

Thank you, Alvaro. We have another question from Gamze Alper and it's pretty much related to the first one. And it's regarding how we started the year? Alvaro?

Yes. Well, as we read in the news, there is a slightly contraction around 4% in the construction sector, cement 4% construction sector. So we are in that level. The idea is that because of holidays, normally constructions need some days to restart operations. So January is not significantly meant to make projections. So we -- as I mentioned, we expect to have a slowly construction regarding 2021.

Excellent. Thank you, Alvaro. We also have a question from María-José Quiñones. She's asking how the war in Russia and Ukraine can affect the cement industry in Peru, given higher oil prices and gas?

Yes, definitely, we are -- we see that prices in gas and oil has increased significantly. That's going to affect all our other costs in our plants. So it's going to impact our results. The idea is to produce as much as we can, trying to dilute our fixed costs to compensate our -- barrel cost that are going to increase because of these problems.

We have another question from Gamze Alper from Turkey. And he's asking if we can give some color in terms of demand in our operations in Ecuador for 2022? Alvaro?

Yes. Well, really, Ecuador has outstanding performance in 2021. Increases in volumes were really, really good. Prices keep stable. The idea is that in Ecuador, they are a good political and economical environment, and we expect to continue growing into that market, not as much as 2021, but we are expecting to increase our volumes for the next year -- for this year.

Excellent. Thank you, Alvaro. We have another question from Bianca and she's asking us to comment on prices in Peru. And if we see increases and if we see that these increases can offset the relatively low volumes estimated for 2022?

Yes. We already increased prices at the beginning of the year. So we hope that we are going to maintain those prices for the rest of the year, considering that we will have an FX stable. You saw that the FX rates have reduced importantly. That's impacted positively with our cost. So the idea now is to maintain our prices. And we think that, as I mentioned, we will be close to the result of 2021. So it's going to be a compensation there.

Excellent. We have a question from Sebastian. He is asking if we can comment about CapEx -- our CapEx plans for 2022? And what are our cash flow expectations?

Yes. Well, because of the pandemic and the increase of cost in 2019 and 2020, we reduced our CapEx execution. The idea is we need to return to a normal CapEx level. So you will see an increase in CapEx for this year. And it's not going to be an important increase in our debt because our CapEx is going to increase. So the idea is that we will kind of afford the CapEx for this year with a very short increase in our debt. The idea is that considering that the volumes that we have in our budget and prices and costs that improved because of the FX, we see that we can afford with no problems in ratios and in cash flow for this year. So it's going to be more CapEx with own resources mainly.

Excellent. Thank you, Alvaro. We have another question from [ Emre Bexen ] from Turkey as well. And he's asking if we can give them some color regarding the demand in the U.S. for 2022. And if we expect that we can recover from the contraction in volumes in 2021?

Yes. As we mentioned, in the case of our U.S. operations, they were affected because the environment, the monsoons affected, rains and storms, the construction in Arizona. So the idea is if we don't have that problem in this year, we're going to recover our volume levels close to 2019. So last year, in terms of operations, we had a lot of stoppage because of storms, rains and that kind of problems. So if that problem doesn't repeat this year, we can have better volumes because the market is there. The market is good. Construction is very, very hard. I think prices are going up. So if we don't have that kind of problems, we're going to have a very good year for our U.S. operations.

Excellent, Alvaro. Thank you very much. We have another question from Francisco Suarez in Mexico from Scotiabank. And he's asking about what do we expect from -- given the utilization rates that we have, if we are planning to buy clinker from third parties this year, I assume that's in Peru. And if we can tell them what is our view of import parity prices in the market in Peru as well.

Okay. Francisco, well, we have enough capacity to meet the demand. We don't have the problems that we are over our capacity. We expect that we can go further that we are expecting for the year. The idea is that our excellence of clinker we export. If the market -- local market increase, we reduce our exports. The idea is to meet the local demand first. About import prices, we look in our custom that the clinker is arriving to Peru around $90, so increased a lot comparing to 2021. So it's good. It's increased because of the clinker costs globally and the freight costs also. So we expect this year prices around $80 or $90 to import clinker to Peru.

Thank you, Alvaro. I will just add that for our -- for imports coming into Peru, the logistics is also something that we have to take into account. Importers are definitely having a hard time given the FX situation, the clinker prices and freight prices. Thank you, Alvaro. We have another question from Gamze, and he's asking if we see further debt reduction in 2022.

Because -- as we mentioned, because our CapEx budget for this year, we will see a slightly increase in our debt for this year. We can afford the most of the CapEx with our cash flow generation, but we will need some increase in our debt. So -- but look, we are in -- the EBITDA ratio is really, really very healthy. And we will keep this year around 2.4 to 2.6 debt-to-EBITDA ratio. So you will not see something significantly that affect our financial position.

Yes. Gamze, I would just add that given our estimation of cash flows and our CapEx estimates, we should -- we are comfortable with the debt that we have -- the debt levels that we have right now. So as Alvaro mentioned, we don't see an important fluctuation in these levels. Any other question? We do have another question from Bianca, and she's asking if we have a fear for over cost of imported clinker? I think Bianca, Alvaro already mentioned that the clinker that we see in customs right now is arriving in Peru at levels of around $90 from $85 and $95. So that price is already showing the over cost that reflects the lack of clinker in the world in general. Alvaro, I don't know if you want to add something.

Yes, and the freight cost.

The freight cost. Okay. We have another question from Gamze, and he's asking about dividends for 2022, Alvaro?

Yes. We have -- in the last shareholders meeting, we modify our dividend policy that it was PEN 0.01 to PEN 0.02 per share, now it's PEN 0.02 to PEN 0.04 per share. The idea is that we are expecting to pay PEN 0.02 per share quarterly. That is going to be in the lower part of our policy. It's what we're expecting for 2022.

Great. Thank you, Alvaro. I would just like to add regarding the import of clinker as Alvaro mentioned, we are not expecting to import any clinker. Actually, we are producing the clinker that we will require for the local market. And any surplus, we also -- we are exporters. So we are net exporters, not importers. Any other question? Yes. We have another question from Gamze, and he's asking about our acquisitions in Chile. Actually, we had 2 acquisitions, 1 earlier during the year, the San Juan plant; and 1 at the end of the year, the San Antonio plant. Alvaro?

Okay. Thank you. Well, in the case of Chile, we have many years of presence in the market with our export of clinker. We -- since 2012 or 2013, we export clinker to Cementos La Unión that we acquired in March this year, in 2021. The idea is that, as a policy, we think that it's very important for us to increase our regional market. What means that we have a good capacity of clinker in our plants in Peru and what we need is to increase our market. As we were exporting close to 700,000 tons to Chile, the idea is with these 2 mining facilities, we can go to the same market with our exports and have -- and gain some added value, selling the cement in the Chilean market. We see the Chilean market with good eyes because there is a lot of infrastructure and housing projects. The market is hot there in Chile. And we expect for the next 3 or 4 years a good market for our products. The idea is we have the port facilities. We have -- we are the closest country to Chile. So we think that we are very efficient to participate in the Chilean market, exporting our clinker, producing cement in our facility there and meeting the demand in Chile.

Thank you, Alvaro. I would just like to add, Gamze, that we already had operations in Chile on the ready-mix side and the precast cement structures, Preansa. So we already have the go-to-market. And with these acquisitions, we are sourcing these 2 businesses, but also we are selling back cement through the San Juan plant. So the strategy with these mining facilities closes the circle, and in any corner, the acquisitions made sense for us. Thank you, Alvaro. We have another question from Bianca. Bianca is asking about the market share in Peru, that we experienced some increase in the market. And if we see that we are going to keep growing in terms of market share in the Peruvian market.

Our expectation is to maintain our market share in Peru. That's our expectation for 2022.

Yes, that is true. We are not looking for some aggressive market share increase in Peru, Bianca. We have also a question from Emre. Emre is asking about further M&A opportunities for the group, Alvaro. Now that we have this -- we went through this reorganization processes and we have the corporate structure, the corporate structure is looking at this kind of M&A processes. Alvaro, how are you seeing these opportunities in the market nowadays?

Okay. We always look for opportunities. It's something that we have in our [ ADN ]. But the idea now is with our reorganization as a corporate, the idea is to increase our profitability of the -- we think the good assets we have now. We are concentrating our -- to make more profitable in our operations now in all the regions that we are. And if there are opportunities in the way, excellent, we will see. We don't have anything now in our radar.

Thank you, Alvaro. Any other questions? All right. Apparently, we don't have any more questions. If there is something else that you would like to discuss or ask us, please feel free to contact me or Monica. We are always available for you. And with this, I will be closing the call. Thank you very much for your attendance, and I hope to see you soon in person as we used to before the global pandemic. Thank you very much. Have a good day.