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

Greetings, and welcome to Grupo UNACEM's Fourth Quarter 2023 Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It's now my pleasure to introduce your host, Monica Paucar, Investor Relations Manager. Thank you, Monica. You may now begin.

Thank you, Rob. Good morning, everyone, and welcome to our earnings conference call. This morning, Pedro Lerner, our CEO, will discuss the latest developments that affected our operations during the fourth quarter as well as our full year results. Later on, Alvaro Morales, UNACEM's Corporate CFO, will present the fourth quarter financials in detail. Please note that we might disclose some forward-looking statements related to Grupo UNACEM based on currently known facts, expectations and forecasts, circumstances and assumptions regarding future events. Many factors could cause the future results, performance or achievements of Grupo UNACEM to be different from those expressed or assumed herein. So this should be considered for reference only. Pedro, you may begin.

Thank you, Monica. Ladies and gentlemen, good morning. It is a pleasure once again to share with you our quarterly performance. Once again, our operating platform has proven quite resilient. Despite of challenging economic and political environment in our Latin American markets, we have achieved a consolidated EBITDA of PEN 381 million in the fourth quarter of 2023. Only 1.3% below the fourth quarter of [ '23 ] with revenues actually improving to PEN 1,658 million, up 3.3% year-over-year. In terms of the whole year, we achieved an EBITDA of PEN 1,492 million, a 5.1% decline in spite of a 6.6% increase in the top line. The drop in profitability is explained mainly by nonrecurring factors related to the transaction costs of the Tehachapi deal closed on October 31. These have offset the significant efforts in profitability improvements in our Peruvian operations. EBITDA margin for the quarter amounted to 23% and to 23.4% for the year. Onetime expenses represented 87 basis points for the quarter and 23 basis points for the year. During this quarter, our Peruvian operations managed to offset the weak economic environment with stronger pricing and cost efficiencies in the case of cement. [ Reactivation ] of large infrastructure projects with better pricing in our ready-mix platform and stronger marginal costs in the energy market, coupled with incremental EBITDA from Termochilca incorporated in our operations in May 2023. All in all, Peruvian EBITDA increased 6.5% year-over-year in the fourth quarter of 2023. On the flip side, our Chilean and Ecuadorian operations posted double-digit declines in EBITDA as a result of a difficult industry environment and adverse foreign exchange impact in the specific case of the Chilean peso. We're able to remain confident of the long-term potential of both of these operations. As such, we doubled milling capacity in Chile to 600,000 metric tons in April 2022 and closed 2023 operating at over 80% of capacity and an estimated market share of 11%. On the ready-mix side, we're relocating some of our plans and participating in high-profile public infrastructure projects, both of which should bring positive results in 2024. In the case of Ecuador, we are working on offsetting the market slowdown with several commercial initiatives, to increase our reach to the end customer and operational efficiencies focused on our carbon emissions goals for 2030. Our U.S. operations were impacted by onetime expenses related to our Tehachapi deal. Apples-to-apples EBITDA growth would have been 8% -- during the fourth quarter of 2023 compared to the prior year as a strong performance in cement offset the impact of operating only one quarry in our aggregate business. As you know, we closed our Tehachapi deal on October 31. And since then, our teams have been working on the integration of both cement operations. Tehachapi has contributed with 80,000 tons during the quarter, and we expect volumes to pick up after the rainy season is over. In the meantime, I commend our team's effort to achieve a seamless transition. Our first milestone is to launch the commercial rebranding and integrate the back office platforms in the second quarter of 2024. Following our 2 successful M&A deals and annual CapEx of PEN 500 million, we closed the year with a leverage ratio of [indiscernible] EBITDA. Although this is above our 3x EBITDA goal, we are confident we will be able to lower debt levels in the next couple of years as the new business unit results are fully reflected in our consolidated numbers. Finally, I reiterate our optimism for 2024. And in spite of being conservative on the macro environment in several of our markets, we see infrastructure investments start to pick up and our efficiencies and strategic initiatives bearing fruit. These, coupled with our inorganic expansion should bring consolidated EBITDA growth up by high single digits. 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, our results prove resilience, considering the challenging economic and political environment we faced. I will discuss our performance, which show once again the advantages of our diversified platform. In terms of volumes, Peru, cement dispatches registered 1.5 million tons in the fourth quarter 2023, a decrease of 14.8% versus the first quarter of 2022. Additionally, clinker export through the Conchan terminal reached 252,000 tons, 150% higher than those reached in fourth quarter 2022 according to our commitment to clients this year. Full year dispatches reached 5.8 million tons, a 12.5% decrease compared to 2022, still a solid result considering that 2022 volume was a record for the company. As we anticipated, volume drop this year was partially compensated by higher average prices. Overall, the cement market in our area remains strong with Unacem growing above the total Peruvian market with almost the same market share above 48% in the year. Peru ready-mix recorded similar volumes during the quarter, 679,000 cubic meters compared to 685,000 cubic meters of the first quarter 2022. Full year volumes were 1.6% higher compared to 2022. Better volumes were dispatched in the second half of the year as ongoing infrastructure projects already contracted increased their dispatch pace, namely Line 2 of the Lima Metro, but that by the end of 2023, hit over 1 million cubic meters of ready-mix dispatch and others like the expansion of Jorge Chavez Airport and Chancay Port. CELEPSA fourth quarter 2023 volume was 68.8% higher than fourth quarter 2022. Energy sales reached 879 gigawatt hour. Full year results for CELEPSA considering hydro and thermal generation recorded a total volume sold of 3,542 gigawatts hours versus 2017 gigawatt hours in 2022. Termochilca Incorporation to our portfolio, prove our investment and growth strategy in this business, especially in a dry season year like 2023. Ecuador. In UNACEM Ecuador's fourth quarter cement volume decreased 17.3% to 290,000 tons sold compared to 351,000 tons sold in the first quarter of 2022. Year-to-date volumes in Ecuador were 9.5% lower than 2022. The political unrest before elections constrained demand in the quarter and in the whole year. Furthermore, first quarter ready-mix volumes were 16.8% lower as the execution of infrastructure projects lagged during the year. Full year volumes were 6.5% lower compared to 2022. U.S.A. Drake Cement reported 155,000 metric tons of cement sold during the first quarter 2023, and our recently incorporated Tehachapi plant contributed with 80,000 tons. All in, our U.S. cement volume increased by 55.7% in the quarter. Nevertheless, our ready-mix operations reached 225,000 cubic meters sold, slightly lower by 1.3% than in the fourth quarter of 2022. Aggregate volumes were lower by 31.4%, amounting 463,000 metric tons. As we are operating only one quarry since January 2023 in spite of lower revenues from the aggregate unit, EBITDA this year was 6x higher compared to 2022. Payment volume for 2023 were 5.2% higher than in 2022 with 702,000 tons. Ready-mix recorded 971,000 cubic meters sold, a figure 0.9% higher. Aggregates reached a total dispatch of 1.8 million tons. Chile, UNACEM Chile cement dispatches of 121,000 tons during the quarter, with both plants operating. Furthermore, cement dispatches in 2023 recorded 479,000 tons, 11.4% year-over-year. 2023 performance of the [ sector contract ], nevertheless, our team managed to work closely with our clients, improving our market share. Ready-mix dispatches in the first quarter reached 191,000 cubic meters, 11.3% lower than in the fourth quarter of 2022. Full year ready-mix volumes were 24.1% lower than in 2022 with 712,000 cubic meters dispatched. Our consolidated revenues during the fourth quarter of 2023 increased by 3.3% versus the fourth quarter of 2022, driven mostly by the incorporation of Termochilca, and Tehachapi and a strong U.S. market and better pricing in Peru. Full year consolidated revenues increased by 6.6% compared to 2022. This increase is explained by the above-mentioned and slightly higher results from our Peruvian and U.S. concrete business. Consolidated cost of goods sold were 3.7% higher than in the first quarter 2023 due to lower economies of scales in the cement operations and higher raw material costs in the cement and ready-mix operations in Peru. Full year consolidated cost of goods sold were 10.3% higher in 2023 compared to 2022, explained additionally by the incorporation of Termochilca. Our gross margin was 24.7% versus 27.2% of 2022. Our administrative expenses in the fourth quarter were 38.3% higher than in the fourth quarter of 2022 with no recurrent expenses associated to the U.S. acquisition of PEN 18.8 million. Excluding these expenses -- excluding these expenses, administrative expenses increased by 21.7%. Selling expenses in the quarter were 18.7% lower than in the fourth quarter 2022, in line with lower volumes. Full year administrative expenses in 2023 were 20% higher due to nonrecurring expenses from inorganic growth by PEN 20 million. Without the acquisition, 15.3% higher. Higher consulting services and personnel expenses required to implement our strategy across all business units. Selling expenses were lower by 4.1% than in 2022 as a result of lower volumes and strict use of marketing expenses. In the first quarter, net all the expenses and incomes passed from and expense of PEN 4 million in the first quarter 2022 to an income of PEN 21 million in the fourth quarter 2023, mainly due to nonrecurring income from the real estate sale in our Chile operations required by authorities to expand our site. Also no expenses in the quarter related to UNACEM Peru voluntary retirement product. For the full year, net other expenses and income recorded a gain of PEN 10 million for the reasons mentioned before. Consequently, our consolidated operating profit in the quarter was PEN [ 1,257 ] million, 1.1% lower than in the first quarter 2022. Full year consolidated operating profit was PEN [indiscernible] million, lower by 8% -- 8.8% compared to the PEN 1,085 million recorded in 2022. The operating margin was 15.5% in 2023 versus 18.2% in 2022. The consolidated EBITDA in the quarter was PEN 381 million, 1.3% lower year-over-year. 2023 consolidated EBITDA was PEN 1.49 billion, 5.1% lower than the PEN 1.57 billion which in 2022. EBITDA margin in the quarter was 23% versus 24% during the first quarter 2022. EBITDA margin for 2023 was 23.4% versus 26.3% of EBITDA margin in 2022. Lower volumes across all business units in LATAM were partially offset with higher average price and a solid performance in our U.S. operations. Financial expenses were 62.3% higher in the quarter as Termochilca and Tehachapi acquisitions were fully executed this year. Full year financial expenses were 42.6% higher, higher than in 2022, explained by higher debt due to inorganic growth and higher average cost due to market conditions. Foreign exchange in the quarter went from PEN 25.8 million gain in the first quarter of 2022 to PEN 22.8 million foreign exchange gain in the fourth quarter 2023. Full year foreign exchange gains decreased from PEN 35.4 million in 2022 to PEN 4.6 million in 2023, mostly by the conversion of U.S. dollar-denominated debt to soles and a slightly lower FX rate in the year. Net profit in the quarter was PEN 136 million. Full year net profit was PEN 514 million versus PEN 660 million during 2022 due to the factors mentioned before. Consolidated net debt was PEN 5.1 billion, higher than the PEN 3.4 billion at the end of 2022, mostly explained by the new debt for inorganic growth for PEN 1.7 billion. As a consequence, net debt-to-EBITDA ratio closed at 3.4x in 2023, up from 2.2x at the end of 2022. We are momentary above our target leverage ratio, but should recover when Termochilca and Tehachapi reflect full year results. In terms of CapEx, disbursements totaled PEN 500 million during the year, 19% higher. The main investments are related to the new automated packaging system, the kiln #3 dedusting system and improvement in Kiln #1 in UNACEM Peru. The integral mill project in Drake Cement and the increase in fixed assets for the aggregate division in the U.S., mixers trucks and pumps in UNACEM Peru and Kiln #1 optimization project to increase production and the hydrogen injection project, both in UNACEM Ecuador. We expect an increase in our CapEx this year and we should recover the pace on the execution of some important projects, mainly related to our environmental strategy as some of them have a delay in execution due to local government permits and licenses, especially in Peru. Thank you. That will be all from my side. Now we open the microphone for your questions.

[Operator Instructions] At this time, I don't see any phone questions. Monica, would you like to see if we have any questions submitted over e-mail.

Yes, Rob. We're going to give a couple of minutes so we can receive, if any questions from the webcast.

While we're waiting, if you have a question with webcast, you may submit at this time.

Thank you, Rob. We have a question from [Omar]. He is asking what's your guidance of cement dispatches in Peru and Ecuador for 2024? I'm going to pass it over to Alvaro.

Thank you for the question. In Peru, we are expecting a better year in terms of dispatch due to an improvement in the economy driven by the private and public consumption and the recovery of the sales construction. In Ecuador, we expect that what the microeconomics -- sorry, in Ecuador, we expect that what the microeconomic is regarding improvement in spending will allow general construction to improve. At the moment is still cautious. The stability in Ecuador will give a boost in the performance of the company, and we will monitor and keep you post. We are cautious about Ecuador 2024 dispatches [ in this year ].

And one more follow-up question from [ Omar ] regarding pricing strategy in Peru. Alvaro?

Yes. About this year 2024, we expect to have an average increased price around 3% to 4%, mainly due to the higher fuel cost that we expect to have to this year. But in terms of market, we see that pricing stays -- that what we think that's going to be -- good for the Ecuador market.

Another follow-up question from [ Omar ]. Can you comment on your capital expenditures for 2024 on a consolidated basis. Alvaro?

Okay. For 2024, we are focused on sustaining projects that will improve the efficiencies of the operations in the long term and also projects related to our carbon neutrality efforts. We are not planning any big expansion CapEx at the moment on. The quicklime project that we announced in joint venture with Calidra from Mexico that should start construction during the second quarter 2024 and start operations in the first half of 2026. In 2024, we're expecting CapEx at slightly over PEN 1 billion related to focus on sustainability efforts.

Okay. We have another question from [ Gerard Ford ]. How much are you expecting of nonrecurring expenses related to the integration of Tehachapi for 2024? Alvaro.

Yes. Thank you for the question. About the integration of Tehachapi, we are using with our own resources. So you will not see any nonrecurring expenses in 2024 related to the Tehachapi acquisition. All the expenses were registered in 2023. The bank fees, the lawyer fees, all the integration was made in last year.

We're receiving more questions. Just a minute.

There are no questions on the phone at this time, Monica.

Yes. We have one more question from [ Omar ]. If you can give some more details on the other operating income generating of PEN 20.9 million in the fourth quarter, is recurring income considering PEN 24 million generated on the '24. And I'm going to pass it over to Alvaro. So just to recall the question regarding the operating income generated in the fourth quarter that amounted PEN 20.9 million, Alvaro.

Okay. In the case of CELEPSA, CELEPSA registered PEN 6 million regarding the [ badwill ] of the acquisition of Termochilca. Additionally, CELEPSA registered PEN 2.3 million from a provision that they eliminate about the maintenance of the Carpapata, Unacem's hydroelectric -- in the case of Skanon, they received PEN 1 million regarding sales of mixed trucks for us that's a ready-mix. In the case of Ecuador, they had PEN 1 million regarding another elimination of a provision for the year. UNACEM Chile, PEN 14.7 million regarding the export -- the sale of the Peru-based, San Antonio. And in the case of -- and there are another numbers regarding other concepts. Other concepts for PEN 3 million. So the main things are CELEPSA with PEN 8.8 million, PEN 14.7 million from the sale of the land in Chile and the others are recurring, recurring incomes that are normally for the business.

Thank you, Alvaro. Rob, I don't see any other questions from the webcast.

There are no questions on the phone at this time I see, Monica.

Great. So I will pass it over to Pedro for his closing remarks.

I'd like to invite all our shareholders to our next Annual Shareholders' Meeting to be held in March 27. We look -- we're looking forward to seeing you there. Thank you very much for your time this morning, and please do not hesitate to reach out to Monica, should you have any follow-up questions. Have a great day.

This will conclude today's conference. You may disconnect your lines at this time. Thank you for your participation.