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

Greetings, and welcome to the Grupo UNACEM First Quarter 2025 Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It's now my pleasure to introduce your host, Monica Paucar, Head of Investor Relations. Thank you. You may begin.

Thank you, Melissa. 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 first quarter of the year. Later, Alvaro Morales, Grupo 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 fact, 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 hearing. 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 performance this past quarter. Our consolidated EBITDA for the quarter reached PEN 319 million, a 7% decrease year-over-year. Margins declined to 23.3% from 26.1%. However, excluding the onetime income effect from the sales of land banking UNACEM North America last year. EBITDA would have been relatively stable and margins would have declined 106 basis points from 24.4% instead of 26.1%. Our markets across the board performed well, with Chile and Ecuador supporting our incremental revenue this quarter. In the case of Chile, we're experiencing strong demand across all our vertically integrated platform as well as a more confident and optimistic market environment with the construction sector showing signs of a sustained recovery. As such, cement prices have increased during the quarter, and we have several ongoing infrastructure projects like Puoint Industrial, Projecto Centinela, Carrera de la Fruta and other highways that we service from our ready-mix and precast operations. In Ecuador, our first quarter results show a positive recovery both in cement volumes and pricing with our ready-mix operations working at full capacity in the development of the new urban areas San Patricio. Additionally, we believe the recent election of Mr. Nogoa as President has provided a much needed confidence boost among the business environment with immediate effect by a decrease in country risk and lending rates. In the case of the Peruvian cement and ready-mix markets, although volumes have declined, this impact was offset by better pricing in both segments. We believe the positive economic growth registered in the first quarter as GDP increased 3.92% together with self-construction demand and private infrastructure projects will be the source of incremental demand for the coming months. Our energy business, TLIPSA, is performing above our expectations with a strong top line growth of 16.2%, supported by new long-term clients. In line with our investment strategy for Termochilca and our confident sustainability efforts, we are currently carrying out a major maintenance overhaul at the thermal power plant. This includes the upgrade of the gas turbine that will increase our generation capacity by approximately 18 megawatts and will improve gas consumption efficiency and extend the useful life of critical components by an estimated 33%. We expect this overhaul will conclude during the second quarter of 2025 and generate a direct impact on profitability, which we estimate in $3.5 million per year. This project will mobilize over 450 people per day at peak times. And for this, we will reinforce our Vida Primetal safety program, which is a key component at Grupo UNACEM. Regarding the U.S. market, our operations in California posted a 49% increase in volumes year-over-year and 20% above our budget. This is the result of stronger demand, but more importantly, a reflection of our commercial efforts to recover market share since we acquired Tehachapi. This growth in California has offset a somewhat slow start of the year in our Arizona operations, but we believe that our combined cement volumes will post double-digit growth during the year. I would also like to share with you our inroads in the aggregate segment in the United States. As you know, we have a vertically integrated operation with the production of cementitious materials and ready-mix operations in California, Arizona and Las Vegas as well as our aggregates business in Arizona. This past quarter, we have signed an agreement to acquire an additional 88 acres in Arizona with estimated reserves of 25 million tons or USD 6.7 million. The transaction will close the second quarter. We are now in the early stages of permit completion, and we are assessing the CapEx requirements for its exploitation, but we're very optimistic of the incremental value this operation will bring in the near future. Finally, this quarter, we completed the refinancing structure of our debt in local currency, with which we have improved our debt profile, and we are closing the quarter with 85% of our debt in long term and a net leverage ratio of 3.23x EBITDA. In line with our financial planning, we are now working on the restructuring of our U.S. dollar-denominated debt which should be completed during the second half of this year. All of this is according to our financial strategy. Well, that will 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. away.

Thank you, Pedro. Good morning, everyone. Thank you for joining us today. I am glad to present this first quarter financials. As Pedro mentioned, we had solid results this quarter, backed by resilient volumes in Peru, a strong demand in California and signs of recovery in Ecuador and Chile. Our consolidated revenues increased by 4.1% year-over-year in the first quarter of 2025. Our portfolio volumes performed well across the board with the exception of a lower start of the year in Arizona. From Peru, cement dispatches registered 1.3 million tons, a decrease of 0.8% versus the first quarter of 2024, showing a positive trend and signs of a recovery in self construction demand. On the other hand, clinker exports through the contract terminal peer, reached 182,000 tons, 31% higher than those in the first quarter 2024, in line with our commitments to clients this year. Our ready-mix business in Peru recorded 588,000 cubic meters compared to 717,000 cubic meters in the first quarter 2024, a decrease of 18% due to the completion of important infrastructure projects, such as the Shanghai port and the Jorge Chávez International Airport. Nevertheless, dispatches to housing and private projects remain strong. We also continue dispatches to the Line 2 of the Lima Metro and the Bicentennial school projects. CELEPSA consolidated volume was 10.4% higher than in the first quarter 2024. Energy sales reached 1,052 gigawatt hours. Revenues from the energy platform grew 10.4% due to the higher volumes sold from the hydroelectric business with favorable hydroelectric conditions that offset higher marginal energy costs. In Ecuador, UNACEM Ecuador cement volumes increased by 3.4% to 275,000 tonnes of sold, compared to 266,000 tons sold in the first quarter 2024. Additionally, ready-mix volumes were 49,000 cubic meters, up to 78.9% from last year. As we are working at full capacity in the development of the new San Patricio urban area on the outskirt of [indiscernible] in the U.S.A. Our U.S.A operations UNACEM North America reported 282,000 metric tons of cementitious materials during the first quarter of 2025 versus 243,000 metric tons in the first quarter 2024, 15.8% higher. Tehachapi contributed with 152,000 tons of cement sold. Ready-mix operation recorded 232,000 cubic meters sold 8.7% lower than in the first quarter 2024. Aggregates volumes were lower by 14.2%, amounting to 361,000 metric tons. Prices remain solid in both markets. In Chile, UNACEM Chile cement dispatches recorded 126,000 tons during the quarter, which is 3.7% lower year-over-year. Ready-mix dispatches were up by 29.3% with 259,000 cubic meters dispatched, a recovery that, as Pedro mentioned, we expect to continue throughout the coming months. Consolidated cost of sales were 4.6% higher in the first quarter of 2025 due to higher production costs in UNACEM Peru explained by the scheduled maintenance in the quarter and higher marginal cost in the energy platform. This increase was offset by higher economies of scale at Tehachapi, Ecuador and the integrated operation of Chile that has semi ready-mix and precast. As a result, gross margin was 25% slightly down from 25.4% in the first quarter 2024. Our administrative expenses in the quarter were 8% higher than in the first quarter of 2024. This increase is due to the new operation of Las Vegas facility, insurance expenses and higher depreciation in the U.S. Additionally, as disclosed in our strategy, IT expenses were higher as we were reinforcing our platform to build stronger capabilities within the group. Still, cash administrative expenses remained stable as a percentage of revenues from 8.4% to 8.7%. Selling expenses were slightly higher as we strengthened our sales force in Peru. In the first quarter, other income and expenses net recorded an income of PEN 5 million compared to PEN 26.5 million in the third quarter 2024. This is explained by a onetime income -- by a onetime income from the sale of land in UNACEM North America last year, which has an effect of PEN 27.5 million. Other effects included higher expenses at Unicon Peru due to the launch of the new brands and higher port operation costs at UNACEM Peru. Consolidated EBITDA for the quarter was PEN 390 million, 7% lower than the EBITDA of PEN 419 million in the first quarter 2024. Better volumes, prices and operating margins of Ecuador and Chile were partially offset by the lower economies of scale in cement operations in Peru, a lower margin energy due to the higher marginal cost and a decrease in ready-mix and aggregates volumes in Arizona. EBITDA margin for the first quarter 2025 was 23.3% versus the 26.1% achieved in the first quarter 2024. As Pedro mentioned, excluding nonrecurring income, EBITDA for the quarter would have been stable compared to the first quarter 2024. EBITDA for the last 12 months was PEN 1,631 million compared to PEN 1,523 million in the first quarter 2024. Last 12 months EBITDA margin improved slightly to 23.6% from 23.2% in the same period of last year. The increase was driven by a recovery in cement and ready-mix volumes in the second half of 2024 across all the group's operations. Additionally, the energy business made a significant contribution to the portfolio, resulting in higher energy sales due to the addition of new clients coupled with a nonrecurring income recorded in the fourth quarter of 2024. Finally, financial expenses were lower by 7.5% in the first quarter 2025 versus the first quarter 2024 as our refinancing strategy was implemented benefiting from favorable market conditions. Foreign exchange in the quarter went from a loss of PEN 18.4 million in the first quarter 2024 to a gain of PEN 28.3 million in the first quarter 2025. Net profit from the quarter was PEN 112 million slightly higher than the PEN 111 million in the first quarter of 2024. This quarter's net income was impacted by the effect of the taxes paid due to the retention of income tax for the dividends received from Ecuador. This effect amounted PEN 8.1 million. There was no comparable tax in the same period over time during the year. Excluding this recorded tax net income in the first quarter 2025 would have been PEN 111.8 million, 6.5% higher. Consolidated net debt was PEN 5.3 billion higher compared to the end of last year. Execution of capital that is in a better pace. Nonrecurring disbursements and working capital needs for our U.S. operations were funded with local bank loans. The net debt-to-EBITDA ratio was 3.2x, slightly above the figures at the end of the previous year. During the quarter, we completed a refinancing of short-term liabilities of PEN 1,812 million in UNACEM Corp and UNACEM Peru, extending the maturities and improving our debt profile. This transaction is aligned with the company's financial strategy of accessing more favorable market conditions in terms of interest rates. Our current liquidity ratio increased by 1.2x as a short-term debt significantly reduced to 50% at the end of the quarter. In terms of CapEx, disbursements totaled PEN 202 million, 112.1% higher than in the first quarter 2024. The main investments are related to the roofing of the clinker fuels. The sulfur dioxide initial reduction system in Kiln #1 at Atacompo plant in UNACEM Peru major scheduled maintenance in Termochilca mix track at UNACEM Peru and UNACEM North America. Thank you. That will be all from my side. Now we open the microphone for your questions.

[Operator Instructions] Monica, I'm showing no questions over the phone. Do you have questions on the Web?

We don't, but we're going to give a couple of minutes just in case.

Of course. [Operator Instructions]

Melissa, we have one question. Our first question comes from Gabriel Perez from Credicorp Capital. He wants to know our expectations regarding CapEx for 2025. I'm going to pass it over to Alvaro.

Thank you for the questions. Our budget for the CapEx for 2025 is around $289 million. It's around PEN 1,000 million in the different companies of the...

We have another question from Gabriel Also, what are expectations for the U.S. market for this year?

Thank you for the questions. We are expecting to increase as double digit or in volumes, in terms of volume for this year, and we are working very hard to reduce our production cost to better our results.

Thank you. Another question from Justin from Inteligo. If we can provide guidance from Chile, U.S. and Ecuador, I think we covered already the U.S. So I'm going to pass it over to Alvaro to give some guidance regarding Chile and UNACEM Ecuador.

Well, in case of Ecuador, we are looking that we will have a slightly improving our volumes, the 3%, 4% for the year. This is our budget. And in the case of Chile, as we mentioned in the call, there are a very important project that we are working with our ready-mix business and with precast business that we're going to our volumes significantly. I think that may be a double digit in Chile also.

Thank you. Another question from Romarco Mejia, regarding the expectations of the impact of the last actions taken by Trump. I'm guessing probably you're talking about tariffs and those measures. Let me hand it over to Pedro.

We don't expect any impact in the short term, not with regards to the construction industry. Our Trump actions affect the economy as a whole, that's to be seen. But we don't expect any impact in the short term.

Thank you, Pedro. We have another question from Gerard regarding when -- if we can provide details from the maintenance at UNACEM Peru? When it started and when it's expected to end. Gerard, it started in the first quarter and we end in early the second quarter of the year, I will send you a follow-up answer with the details on days for you.

Yes. In the case of UNACEM Peru you have to consider that we have 5 kilns in our 2 plants. And normally, we try to make 1 maintenance -- 130 days maintenance for each kiln across the year. So you will see that the maintenance is going to be more stable across -- in our results across the year.

One more question from Justin. If we can provide an update on the repurchase program. And if the program will expire soon. Alvaro?

Thank you for the question. Regarding our share purchase program, we have a remaining of around PEN 30 million. It's around 9 million shares for the rest of the year. And it's going to be all what we expect for this 2025.

Thank you. I think we don't have any other questions on the website, Melissa.

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