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

Thank you for your patience. The conference will to Grupo UNACEM First Quarter 2024 Results Conference. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Monica Paucar, Head of Investor Relations. Thank you, Monica, you may begin.

Thank you, Sherry. Good morning, everyone, and welcome to our earnings conference call. This morning, Pedro Lerner, our CEO, will discuss the latest development that affected our operations during the first quarter of the year. Later on, Álvaro Morales, UNACEM's Corporate CFO, will present the first 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. Our consolidated EBITDA for the quarter reached PEN 419 million, a 7.2% increase year-over-year, mostly on the back of inorganic expansion as Termochilca was incorporated in May 2023 and Tehachapi in November 2023. Additionally, EBITDA includes the proceeds from the sales of land in the U.S., which represented nonproductive assets for us. Excluding nonrecurring income, EBITDA would have been flat year-over-year. Our top line posted a 13.9% increase, with revenues reaching PEN 1.6 billion. With the incorporation of Tehachapi, our U.S. revenues accounted for 20% of the total, up from 16% in the first quarter of 2023. These results are very much in line with our strategy, to remain focused in the construction materials business, operating geographically diversified footprint. Our Latin American operations continue to face a challenging environment, while the Peruvian GDP posted a shy 1.4% increase in the first quarter of 2024. We have seen a deceleration in the self-construction segment reflected in the slowdown in sales in the traditional distribution channel. This has been partly offset with demand from public infrastructure projects, both from ongoing as well as new projects, especially in the education segment. Our operations in Ecuador and Chile continue to face a declining market. In this environment, we're implementing efficiency measures to lower costs and commercial initiatives to improve our go-to-market strategies. In both cases, we have seen positive results and expect marginal market share improvements in both markets. We believe market conditions will improve in the medium term and are preparing our platforms to benefit from a stronger demand. As I mentioned before, our U.S. operations explained 20% of our revenues and with the incorporation of Tehachapi now represent over 15% of our overall cement capacity. We have completed the first stage of integration process with our California operations and scheduled and have launched the rebranding of the UNACEM North America cement logo last month as planned. In terms of performance, Tehachapi volumes reached 103,000 metric tons during the quarter. The first quarter is seasonally the lowest in the region as the rain and snow impact operations. Second quarter performance so far has proven a steady trend to achieve our goal to increase volumes for the year by 20% compared to last year. Our profitability for the quarter declined to 26.1% from 27.7%, impacted by a combination of factors. The incorporation of Termochilca, although accretive and certainly in line with our strategy to hedge our operations from cyclical dry seasons, has a lower margin than our Hidro operations. Additionally, margins have been affected adversely by lower volumes and higher operating expenses as we are moving forward with key initiatives in technology, safety, controls, among others. We closed the quarter with a leverage ratio of 3.4x EBITDA. Although this is above our 3x EBITDA goal, the expected performance of our ongoing operations as well as the full year impact of our recent acquisitions should lower debt levels in the next couple of years. Finally, I want to reiterate our confidence for the 2024 results. Despite of the slowdown in certain geographies, we believe our diversified portfolio as a whole should post consolidated EBITDA growth in the mid-single digits. That is 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, Pedro. Good morning, everyone, and thank you for joining us today. As Pedro mentioned, in spite of the challenging macro and political conditions in Latin America faced during this quarter, we achieved overall good operating results that allows us to record top line growth and stable EBITDA. Please recall that this is the first quarter that reflects results of last year acquisitions, Termochilca and Tehachapi. Our consolidated revenues during the first quarter 2024 were driven mostly by the incorporation of the acquisitions from last year, Termochilca and Tehachapi, as well as stronger sales in our ready-mix and energy operations. This, coupled with higher average prices in cement business, in Peru resulted in a 13.9% year-over-year increase. Peru, cement dispatches registered 1.4 million tons, a decrease of 8.2% versus the first quarter of 2023. Nevertheless, clinker exports through the Conchan terminal reached 139,000 tons, 31.1% higher than those in the first quarter 2023, in line with our commitment to clients this year. Our ready-mix business in Peru recorded higher volumes during the quarter with 717,000 cubic meters compared to 629,000 cubic meters of the first quarter 2023, a growth of 14%. the higher volumes dispatched on the ongoing infrastructure and projects picked up during the quarter. CELEPSA first quarter 2024 volume was 16.7% higher than in the first quarter. Energy sales reached 624 gigawatts hour as demand from its contracted and new customers increased. Termochilca volume during the quarter recorded 329 gigawatts hours. Ecuador. UNACEM Ecuador's first quarter volume contracted due to the ongoing social unrest and in the country that is affecting the construction activity. Cement volumes has declined by 6.2% to 266,000 tons sold compared to 284,000 tons sold in the first quarter 2023. Ready-mix volumes were impacted also 4.4% lower. U.S.A. Our U.S. operations, UNACEM North America, reported 243,000 metric tons of cement sold during the first quarter 2024 versus 146,000 metric tons in the first quarter 2023, 66.4% higher. As I mentioned before, this is the first full quarter of Tehachapi, which contributed 103,000 tons of cement. Ready-mix operations remained strong, recording 254,000 cubic meters sold, 12.2% higher than in the first quarter 2023. Aggregate volumes were higher by 1.2%, amounting to 421,000 meter metric tons. Chile. UNACEM Chile cement dispatches recorded 131,000 tons during the quarter, which is 11.4% higher year-over-year with both grinding plants fully operating. Ready-mix dispatches experienced an increase of 5.3% with 201,000 cubic meter dispatch. Consolidated cost of goods sold were 11.9% higher in the first quarter 2023. The volume decline on the cement business in Peru and Ecuador resulted in higher production costs with lower economies of the scale. Termochilca incorporation to the portfolio with lower margins compared to the hydropower platform. Our gross margin was 25.4% versus 28.6% of the first quarter 2023. Our administrative expenses in the first quarter were 32.2% higher than in the first quarter of 2023, explained by higher value donations, PEN 7.8 million. The incorporation of Termochilca and Tehachapi, PEN 9.4 million; insurance, PEN 1.9 million; and higher consultancies due to the projects that are being executed across all business units. Selling expenses in the quarter were 4.2% higher than in the first quarter 2023 due to the incorporation of the new companies consolidated in the group's results. In the first quarter, other income and expenses net passed from an expense of PEN 6 million to an income of PEN 26 million. This is explained by a nonrecurring income from the sale of land in the U.S., a nonproductive asset in New York and a precast plant in Chile. Consolidated EBITDA in the quarter was PEN 419 million, a figure 7.2% higher than in the first quarter 2023. EBITDA margin was 26.1% for the first quarter, below the first quarter of 2023 when we recorded a margin of 27.7%. The decline is explained by the lower cement volumes in Peru and Ecuador that were partially compensated by the press adjustments and the incorporation of Termochilca and Tehachapi to the portfolio. Last 12 months, the first quarter 2024 EBITDA was PEN 1,553 million, 1.1% lower than the last 12 of the first quarter 2023 EBITDA. Last 12 months, the first quarter 2024 margin was 23.2% lower than the 25.6% margin over the last 12 months of the first quarter 2023. This decrease in margin is explained by lower economies of scale due to the construction in the volume sold and the corporation of Termochilca and Tehachapi to the portfolio. Administrative expenses were also higher due to incorporation of that new businesses to the growth and increasing consulting services across our business units. Sales expenses were in line with the volumes sold. Consolidated net debt was PEN 45.1 billion, flat compared to the end of last year. As you may recall, both acquisitions were fully levered and long-term debt amortizations have been offered by short-term loans to cover working capital needs in some business yields. All in all, net debt EBITDA ratio was 3.4x in the first quarter 2024, above our 3x target. However, we should deliver in the medium term as our acquisitions do not reflects -- reflect a full year of operations yet. Financial expenses were 74.2% higher in the quarter, explained by the new debt acquired at a higher cost. Foreign exchange in the quarter went from a gain of PEN 15.2 million to a loss of PEN 18.4 million, mostly by the conversion of the U.S. dollar-denominated debt to Sol and a higher FX rate in the year compared to the end of 2023. Net profit during the quarter was PEN 111 million, which is 34.9% lower due to the factors mentioned before. In terms of CapEx, disbursements totaled PEN 95 million, 11.2% lower than the first quarter 2023. The main investments are related to the Kiln #3 dedusting system and the roofing of the clinker fields. Improvement in the grinding facility in Drake Cement and the increase in fixed assets for the ready-mix division in the U.S. Mixers, trucks and pumps in UNACEM Peru. Talca ready-mix new plant in Chile; and Kiln #1 debottlenecking to increase production in UNACEM Ecuador. Thank you. That will be all from my side. Now we open the microphone for your questions.

[Operator Instructions] There are no questions on the phone line. So we will now pause for questions to be typed on to the web platform.