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

Greetings, and welcome to the Grupo UNACEM Second Quarter 2025 Results Conference Call. [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, 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 second quarter of the year. Later on, Alvaro Morales, UNACEM's Corporate CFO, will present the second quarter financials in detail. Please note that we may 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 performance this past quarter. Our consolidated EBITDA for the quarter reached PEN 391 million, slightly above year-over-year. Margins declined to 22.4% from 23.3%, explained mostly by changes in accounting practices in our U.S. operations as we are now expensing all maintenance costs at the incurred time instead of accruing them throughout the year. All our Latin American operations posted positive financial results in spite of mixed volume performances. Our core Peruvian market had stable cement volumes but declining ready-mix, explained by the completion of the large infrastructure projects where we were involved last year. However, in spite of only a 3.3% GDP growth in the first half of the year, we are optimistic on volume performance in the medium term as we expect a pickup in public infrastructure projects, both from the central government as well as the Lima municipality. Projects like the [ Experya ] Santa Rosa and improvements in key highways and roads are already in the works. On the other hand, Chile and Ecuador continued their strong volume performance this quarter, supported by favorable market conditions, but more importantly, by our efforts on our go-to-market strategy in both operations. Finally, our energy division also recorded strong volume growth with the addition of new clients to its portfolio. I also wanted to comment on 2 important events for Grupo UNACEM. As of July, we implemented a major change in our go-to-market strategy in Peru. We have centralized our cement and ready-mix commercial efforts under UNACEM Peru, combining a sound sales team of over 150 [indiscernible] end the year with 460 mixers. The second important news was an event last week, the groundbreaking ceremony of our new lime plant located within our cement operations at the Condorcocha plant in the outskirts of Palma. As announced in June of 2023, we have entered into a partnership with Mexican Group, Calidra, a company with 115 years of expertise in the lime business with operations across Mexico, Central and South America. With a total investment of close to USD 70 million, the kiln will have an initial capacity of 200,000 tons per year. Its location is ideal as it is close to our limestone quarries and also to potential customers. mostly mining companies in the central area of Peru. We expect to initiate operations in the second quarter of 2027. With combined cement and lime operations, Condorcocha will become an important industrial hub in the central highlands of Peru, and we are certain this additional investment will bring welfare to the community. For Grupo UNACEM, Condorcocha is close to our heart as this is where our cement operations began in 1956. 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 at today's conference. I am pleased to discuss our solid second quarter results with you. As Pedro mentioned earlier, despite the mixed performance of our sales volumes, we remain optimistic about the next quarters. During the second quarter of 2025, our consolidated revenues were mostly driven by our Latin American operations. They were stable cement volumes in Peru and Ecuador, significant improvement in the Chilean operations and continued growth in CELEPSA energy sales. In our U.S. operations, the strong performance of our California volumes offset the lower volumes in Arizona. This resulted in a 4.7% growth versus the second quarter 2024. In Peru, cement dispatches registered 1.4 million tons, an increase of 0.4% versus the second quarter of 2024 and a sequential increase of 2.9%, showing a positive trend and a recovery in self-construction demand. Likewise, clinker export through the Conchan terminal reached 169,000 tons, 58.4% higher than those of the second quarter 2024, in line with the recovery of the Chilean market. As we discussed in our previous conference call, our ready-mix business in Peru dispatched lower volumes during the quarter. We recorded 612,000 cubic meters compared to 729,000 cubic meters in the second quarter of 2024. This decline of 16.1% is due to the absence of large infrastructure projects, such as the new Jorge Chávez Airport, Chancay Port and [ Picenterial ] Schools project, which generated significant demand last year. This was partially offset with better average prices as a result of our current mix of sales. As Pedro mentioned, we are optimistic going forward as we see a pickup in the infrastructure projects. CELEPSA consolidated volumes increased by 6.8% compared to the second quarter 2024. Energy sales reached 930 gigawatt hour. Two important long-term agreements with Luz de Sul and [indiscernible] became effective in May. Our hydro and thermal capacities act as a natural hedge for each other in our energy platform. In Ecuador, second quarter volume recovered by 2.4% to 302,000 tons sold compared to 2,095,000 tons sold in the second quarter 2024. Sequentially, volumes were up by 9.8%. Ready-mix volumes were considerably higher with 63,000 cubic meters dispatched against 37,000 cubic meters in the second quarter 2024 as our operation is the exclusive ready-mix supplier for a new urban area on the outskirts of [indiscernible]. . In the U.S. our North American operations reported mixed results. Cement and aggregate volumes in Arizona decreased by 6% and 9.5%, reaching 155,000 and 367,000 tons, respectively. Meanwhile, ready-mix volumes in Arizona grew by 8.1%, reaching 275,000 cubic meters. The California cement operation grew by 10.8%, reaching 176,000 tons for the quarter. All in all, the consolidated cement dispatches of Drake and Tehachapi grew by 2.2% during the quarter. In Chile, our Chilean operations continue to improve. Cement volumes reached 132,000 tons, an increase of 16.8%. Our ready-mix volumes reached 276,000 cubic meters, an increase of 62.5% during the quarter. We continue to build a strong portfolio of clients having presence in emblematic projects such as Line 7 of the Santiago Metro, the Américo Vespucio Oriente II highway and mining projects such as Minera Arquios and Nueva Centinela. Consolidated cost of whole sales increased by 7.5% in the second quarter of 2025 due to the decline in cement and aggregate sales in Arizona, which brought an increase in unitary fixed costs. Additionally, changes in accounting practices in our U.S. operations impacted this quarter results by $4.7 million. We are now -- we are now expressing all maintenance costs as they are incurred instead of accruing them throughout the year. For the following quarters, we expect the opposite effects on results as both kiln shutdown annual maintenance have been executed in the first half of the year. Gross margin for the second quarter 2025 was 23.8%, lower than 25.7% in the second quarter 2024. Our administrative expenses in the second quarter were 5.3% higher than in the second quarter of 2024, supporting several projects being implemented across our business units. As disclosed last quarter, we have begun implementing the first stage of our global shared services. Our goal is to become a more agile and integrated organization by centralizing services, generating synergies and operating under higher standards. As a percentage of revenues, administrative expenses remained stable at 7.4% Sales expenses in the quarter were 18.9% higher than in the second quarter 2024 due to commercial efforts and marketing expenses that contributed to the improved results at UNACEM Peru and UNICON Peru. Expenses were in line with the volumes sold, representing 2.1% of the consolidated revenues. In the second quarter, other net income and expenses were PEN 1.2 million, up from an expense of PEN 33 million. This is explained by the second quarter of 2024 nonrecurring expenses of a write-off of the remaining investment in the Staten Island terminal project after the sale of the associated plant in the first quarter 2024. Additionally, not on the resolution for 2010 income tax. Consolidated EBITDA for the quarter was PEN 391 million, 0.7% higher than the EBITDA of PEN 389 million in the second quarter 2024. This increase is the result of better performance in UNACEM Peru, CELEPSA, Ecuador and Chile with improvement in operating margins. EBITDA for the last 12 months was PEN 1,633 million, higher by 5.7% year-over-year, driven by stronger cement and ready-mix volumes during the second half of 2024 across all group operations and the results of the first half of 2025 explained before. In addition, the energy business made a significant contribution to the portfolio with new clients that boosted sales, complemented by a nonrecurring income recorded in the first quarter 2024. Financial expenses were 19.9% lower in the second quarter 2025, explained by lower stock of debt and a nonrecurring financial expense from a tax process recorded in the second quarter 2024 of PEN 28.2 million. Foreign exchange in the quarter went from a loss of PEN 14.6 million in the second quarter 2024 to a gain of PEN 20.6 million. Net profit during the quarter was PEN 106 million, more than double than the second quarter 2024. Along with the improved operation results, last year net income was affected by higher financial expenses and income taxes at UNACEM Corp related to the aforementioned income tax contingency for the 2010 fiscal year. This amounted to PEN 52 million. If we exclude the nonrecurring effect on the second quarter of 2024, net income would have increased only by 26.6% Consolidated net debt was PEN 5.2 billion, higher compared to the end of last year. Execution of CapEx that is at a higher pace than the second quarter 2024 and some working capital were funded with bank short-term loan. All in all, net debt-to-EBITDA ratio reached 3.19x at closing of the second quarter 2025, slightly above our 3x target. Our ratios are in line with our current financial covenant. In terms of maturity, short-term debt represented 17.2% and long-term debt 82.8%, reflecting a new profile following the refinancing of PEN 1,812 million by UNACEM Corp, UNACEM and UNACEM Peru executed at the end of the first quarter 2025. The foreign currency exposure of total debt at the end of the second quarter 2025 was 9.2%. In terms of CapEx, disbursements totaled PEN 349 million, 29.3% higher than the second quarter 2024. The main disbursements were related to projects such as such as the sulfur dioxide emission reduction system at kiln #1 in Atocongo, the new primary crusher and the construction of the new clinker storage yards in Atocongo and Condorcocha at UNACEM Peru. Additionally, CELEPSA completed a turbine upgrade at Termochilla, increasing its generation capacity by 18 megawatts. Investments were made also in machinery and mixer trucks at UNACEM North America and UNICON Peru. Thank you. That will be all from my side. Now we open the microphone for your questions.

[Operator Instructions] There are no audio questions at this time. Are you compiling any web questions? we have our first question from...

Okay, we have our first question from [ Mariane ]. The question is about Calsem and how -- if you can provide more details about the investment and what will be the ownership stake in Calsem and especially if the CapEx of this year -- if the guidance of CapEx this year includes the Calsem investment. So I'm going to hand it over to Alvaro.

Thank you for the question. As you know, Calsem, it's a new company between UNACEM Corp holding 51% of the share capital and Grupo [ Calibre ] from Mexico holding the remaining percent. The new company seeks to build and operate an industrial plant in the Condorcocha area to produce quick line with an initial capacity of 600 tons per day. As Pedro mentioned, last week, we have a groundbreaking ceremony that marked the start of the construction. The plant will be -- will start operations in 2027. It's a disbursement that we have done from -- up to June 2025, it's PEN 18.7 million from UNACEM Corp. The overall investment for the project implementation amounts roughly PEN 70 million. that includes '25, '26 and '27 -- 2027 CapEx. For this year 2025, our budget is to complete $9 million as our part of the 51% of the investment as a capital contribution. So for 2025, the overall is $9 million.

Are there any more web questions?

Yes. We have another follow-up question from [ Mariane ]. If we could explain the quarter-over-quarter increase in financial expenses. Alvaro?

Yes. As I mentioned, the financial expenses were 19.9% lower in the first and the second quarter of 2025 compared to the second quarter 2024. But in the first quarter 2025, our Financial expenses were around PEN 87 million and for the second quarter, PEN 102 million. This is because we have a short-term debt that were included in the first quarter due to CapEx investments and short-term needs -- no ,capital needs.

Are there any more web questions? Are there any more web questions?

Yes. Another one, and I think that's a follow-up question from Mariane regarding the mine plan. If there will be additional CapEx expected for 2026 and 2027 regarding the $70 million investment, I guess. So Alvaro, can you answer Mariane?

Yes. Thank you for the question. We expect that in 2026, we are going to complete mostly the construction of the new plant of limestone -- of Quicklime. The idea is that the remaining investment of around $61 million is going to be in 2026 because we expect to start operations in the first quarter of 2027.

So just to complement that, the balance mostly will be spent in 2026 out of the $80 million that will be spent this year invested this year.

Are there any more web questions?

We don't see any other questions, Rob. So I'm going to hand it over to Pedro for his closing remarks.

Perfect.

Okay. Thank you all very much for your time this morning. Please do not hesitate to reach out to Monica should you have any follow-up questions. Have a great day.

Thank you.

This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.