UNACEM Corp S.A.A. (UNACEMC1) Q3 FY2025 Earnings Call Transcript & Summary

Greetings, and welcome to the Grupo UNACEM Third 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, investor Relations Manager. Thank you, Monica. You may begin.

Thank you, Rob. Good morning, everyone, and welcome to our earnings conference call. This morning, our CEO, Pedro Lerner, will discuss the latest developments that affected our operations during the third quarter of the year. Later, Alicia Campos, UNACEM's Corporate Chief Strategy Officer, will present the third quarter and year-to-date 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 this past quarter's performance of Grupo UNACEM. Our consolidated EBITDA for the quarter reached PEN 410 million, down 2.1% compared to the third quarter of 2024. Margins declined to 22.9% from 23.4%. This slight setback in our performance is explained mainly by the annual Kiln overhaul and refractory replacement at UNACEM Peru and the U.S. market slowdown. Regarding our Peruvian operations, our cement volumes grew 3.2% during the quarter, and our precast business posted record revenues on the back of local government infrastructure and highway projects. Top line performance is in line with strong September GDP results as construction GDP was up 10.24% and overall GDP grew by 3.94%. We believe the positive trend will continue this last quarter and margins should recover as well. On the other hand, our U.S. operations have faced a difficult macro environment, a weak labor market, mortgage rates that have yet to reflect the decline in Fed interest rates, the impact of tariffs and cost and expected inflation and excess vacancy in nonresidential have decelerated the construction sector and cement demand overall. Our operations have faced a slow demand in Arizona since the beginning of the year, only partially offset by a large data center project in Phoenix, while the California market has started to slow down in the second half of the year. In spite of this situation, we have maintained our cement market share in Arizona in the high teens, increasing our share in the -- market consistently since our acquisition. On ready-mix, although we have been able to maintain stable volumes with the addition of the Las Vegas market, margins have been negatively impacted by the volume mix and higher aggregate costs. We're cautious of the market trend for the next 12 months. And as such, we're already taking actions to improve our profitability at UNACEM North America. We're strengthening our management team. Rafael Villalona has joined as CEO for our U.S. operations. Rafael has vast global experience in our industry and will oversee cement ready-mix and aggregates and is in the process of reinforcing key positions. Additionally, we have an action plan in place to improve our working capital management as well as our cost structure with long-term energy contracts among other efforts. Our goal to continue growing in the U.S. market remains in place, and we are confident that margins will recover in the coming months. Moving on to our energy business. The recent upgrade of our thermal plant has been very positive, and we have increased installed capacity from 297 megawatts to 319 megawatts and have even achieved efficiency levels above our initial targets with Termochilca becoming the combined cycle plant with the lowest incremental cost in the grid. As a result, it is now ranked #1 in the national dispatch order within its category. That will be all on my side. Thank you very much for your attendance this morning, and I will pass it over to Alicia 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 third quarter and year-to-date financials. As Pedro mentioned earlier, despite the challenges in the U.S. market, we remain optimistic about the portfolio's full year results. During the third quarter of 2025, our consolidated revenues were driven by the mixed volume performance in our operations. We registered higher cement volumes in Peru and Ecuador, significant improvements in the Chilean ready-mix market and continued growth in our energy plant. In the U.S., the improved performance year-over-year of our California volumes was offset by lower volumes in Arizona. Ready-mix volumes continue to perform well, thanks to our presence in Las Vegas, while aggregates declined. These results led to a 0.3% growth compared to third quarter 2024. Year-to-date, our consolidated volumes demonstrate resilience across most of our markets. In Peru, cement volumes showed an encouraging growth, while ready-mix volumes declined as large infrastructure projects were completed last year. Our energy business continued to grow, supported by higher generation at CELEPSA. Ecuador posted growth in both cement and ready-mix, supported by recovering demand. In the United States, stronger ready-mix volumes partially offset the decline in cement volumes and aggregates in Arizona, where activity is weaker. In Chile, both cement and ready-mix volumes increased due to higher demand. Overall, these trends resulted in a 3% increase in revenues compared to 2024. As you can see in the chart, the detailed performance in volumes is as follows. In Peru, during the quarter, cement dispatches registered 1.6 million tons, a 3.2% increase versus the third quarter of 2024 and a 13.3% sequential increase. We believe this positive trend indicates a recovery in self-construction demand. Likewise, clinker exports through the Conchan terminal and reached 175,000 tons, which is 17.6% higher than those of third quarter 2024, in line with the recovery of the Chilean market. Year-to-date, dispatches were 1% higher. As we discussed during our last conference call, our ready-mix business in Peru had lower dispatch during the quarter. We recorded 624,000 cubic meters compared to 675,000 cubic meters in the third quarter of last year. The 7.5% decline is due to the absence of large infrastructure projects, such as the new Jorge Chavez Airport, the Chancay Port and the Bicentennial schools, which generated significant demand last year. The volume effect was partially offset by higher average prices, a result of our current sales mix. Year-to-date, volumes were 14% lower. CELEPSA's consolidated volume increased by 2.7% compared to third quarter 2024. Energy sales reached 1,193 gigawatt hour. Year-to-date, energy sales increased by 6.3%, reaching 3,175 gigawatt hours due to the entrance of 2 significant long-term agreements at the beginning of May. In Ecuador, third quarter volumes recovered by 1.6% to 320,000 tons compared to 315,000 tons in the third quarter of 2024. Sequentially, volumes were up by 5.8%. Ready-mix volumes were considerably higher, reaching 66,000 cubic meters versus 58,000 cubic meters in the third quarter of 2024 as we are the exclusive ready-mix supplier for San Patricio, a new urban area on the outskirts of Quito. Year-to-date performance was better. Cement volume grew by 2.4%, while ready-mix grew by 46.2%. Our North American operations reported mixed results. Cement and aggregate volumes decreased by 1.9% and 2% in Arizona, reaching 154,000 tons and 378,000 tons, respectively. Meanwhile, ready-mix volumes grew by 12.5%, reaching 253,000 cubic meters, supported by the expansion in Las Vegas, albeit with lower prices. The California cement operation grew by 3.3%, reaching 169,000 tons for the quarter. All in all, consolidated cement dispatches for Drake and Tehachapi increased by 0.7% during the quarter. Prices for cement and ready-mix have declined driven by market dynamics as cement demand is expected to contract 4.7% in Arizona and remains flat in South California according to 2025 estimates from the American Cement Association. Year-to-date, overall cement dispatches increased by 5.4% as the California market showed resilience during the first half of the year, an increase in ready-mix of 3.7%, driven by our presence in Las Vegas and a decline in aggregates of 8.7%. Our operations in Chile continue to improve. Cement volumes reached 129,000 tons, a 3.6% decrease explained by an unplanned stoppage at the Santiago Metro, while ready-mix volumes reached 277,000 cubic meters, a 38.3% increase during the quarter. We are building a strong client portfolio, including emblematic projects such as Line 2 of the Santiago Metro, the Americo Vespucio Oriente II highway and mining projects, including [indiscernible]. Consolidated cost of goods sold increased by 1.5% in the third quarter of 2025 due to the overhaul of Kilns 1 and 2 recorded in the quarter in UNACEM Peru and due to lower volumes sold in Arizona. In Chile, average unit cost in the ready-mix business increased due to higher raw material costs, especially additives as higher strength ready-mix is required for infrastructure projects. Year-to-date, cost of goods sold increased by 4.5%, mainly due to the performance of the U.S. operations. Gross margin for the third quarter of 2025 was 25%, lower than the 25.9% in the third quarter of 2024. Year-to-date, gross margin was 24.6%. Our administrative expenses in the third quarter were 6.7% higher than in the third quarter of 2024 as we are implementing several projects across our business units as well as nonrecurring personnel expenses recorded at CELEPSA and UNACEM North America. Year-to-date, administrative expenses were also 6.7% higher. As we disclosed last quarter, we are implementing a global shared services. Our goal is to become a more agile and integrated organization by centralizing services, generating synergies and operating under higher standards. Still, as a percentage of revenues, administrative expenses increased only slightly, both in the quarter and year-to-date, reaching 7.3% and 7.8%, respectively. Sales expenses in the quarter were 12% higher than in the third quarter of 2024, mainly due to increased personnel costs associated with strengthening the sales force at UNACEM North America and marketing expenses at UNACEM Peru. Year-to-date, sales expenses were 15.9% higher. In both periods, sales expenses remained consistent with the volumes sold, representing 2.4% and 2.1%, respectively, of consolidated revenues. In the third quarter, other net expenses and income were PEN 7 million compared to an expense of PEN 13 million. This was mainly driven by higher nonrecurring income from the gas distribution agreement at UNACEM Peru and tax refunds at UNACEM Corp. These effects were partially offset by higher personnel severance expenses at UNACEM Peru during the quarter. Year-to-date, other net expenses have only amounted to PEN 1 million. This is explained by higher income recorded from our insurance refunds, tier services to third parties and the sale of land in Ecuador. The other expenses remained stable. Consolidated EBITDA for the quarter was PEN 410 million, which is 2.1% lower than the EBITDA of PEN 419 million in the third quarter of 2024. This decrease resulted from lower operating margins in the construction materials business added to the impact of foreign exchange conversion to soles as the local currency has appreciated 5% during the quarter compared to the third quarter of 2024. If we take out the conversion effect, EBITDA would have been PEN 415 million. Year-to-date, EBITDA was 2.9% lower, reaching PEN 1,191 million, mainly driven by the performance of our U.S. operations. The impact was partially offset by stronger margins in the energy business and in Ecuador and Chile as well as the absence of nonrecurring expense. Additionally, the foreign exchange conversion against Peruvian sol impacted results. Without this effect, year-to-date EBITDA would have increased by PEN 4 million, reaching PEN 1,195 million. Financial expenses were 14.1% lower in the third quarter of 2025, explained by lower debt, more favorable cost of debt and nonrecurring financial expenses from a tax process recorded in the third quarter of 2024 of PEN 12.7 million. Year-to-date, financial expenses were 14.5% lower. Foreign exchange in the quarter went from a gain of PEN 32.9 million in the third quarter of 2024 to a gain of PEN 7.4 million. Year-to-date, FX went from a loss of PEN 100,000 to a gain of PEN 56.2 million. Net profit during the quarter was PEN 119 million, 15.3% lower than the PEN 114 million recorded in the third quarter of 2024. This decline was primarily due to lower operating margins and a lower foreign exchange gain. However, these effects were partially offset by lower financial expenses during the quarter, given our successful refinancing of debt in local currency. Year-to-date, net profit was 12.6% higher. Consolidated net debt was PEN 5 billion, lower compared to the end of last year. Execution of CapEx that is at a higher pace than the third quarter of 2024 and some working capital needs were funded with short-term loans. All in all, net debt-to-EBITDA ratio reached 3.10x at closing of the third quarter, slightly above our 3x target. Our ratios are in line with our current financial covenants. In terms of maturity, short-term debt represented 18% and long-term debt 82%, reflecting a new profile following the refinancing of PEN 1,812 million by UNACEM Corp and UNACEM Peru executed at the end of the first quarter of this year. The foreign currency exposure of total debt at the end of the third quarter was 11%. In terms of CapEx, disbursement totaled PEN 467 million, 10.9% higher than in 2024. As we disclosed at the beginning of the year, CapEx for 2025 and 2026 will exceed historical levels as we align our sustainability initiatives. The main disbursements were related to projects 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 Termochilca in the second quarter, increasing its generation capacity by 18 megawatts. Investments were also made in machinery and mixer trucks at UNACEM North America and UNICON Peru. Disbursements were also made for the construction of CALCEM line plant, which remains under development as planned. Thank you very much for your time. That will be all from my side. Now we will open the microphone for your questions.

[Operator Instructions] There are no audio questions at this time. Are there any web questions?

Yes, Rob. We have one question from Mariane Goni from Credicorp. When do you expect the slowdown in Arizona to reverse? Should we anticipate a similar trend across the U.S. next year? I'm going to pass it over to Alicia.

Thank you, Monica. Yes, as Pedro mentioned, we see an unfavorable scenario during 2026 as well. We do expect demand improving towards the end of the year. And this should be driven mostly by the additional rate cuts, which should impact mortgage rates and a recovery in the residential consumption as well as a lowering of vacancy rates in the nonresidential areas. So we should be -- to your question, we should be seeing improvements in the Arizona market towards the end of 2026.

Are there any more web questions?

Yes. We have another question -- a follow-up question from Mariane. How much of the CapEx has been invested in the new line plant this quarter? And if we could share an update of the progress of the project. Alicia?

Thank you, Monica. Yes, as you know, CALCEM is a new operation, which is a joint venture between UNACEM Corp. and Grupo Calidra who hold a 49% stake. We are in the process of building an industrial plant in the Condorcocha area to produce quicklime, and this should have an initial capacity of 600 tons per day. As Pedro mentioned, we already carried out a groundbreaking ceremony last quarter, and the plant should start operations in 2027. The equity contribution of UNACEM Corp. as of September of this year is PEN 28 million. And the equity contribution from both shareholders in CALCEM to date is PEN 55 million.

Thank you, Alicia. We have another question from Gerard Fort. What's the current utilization rate of our cement, ready-mix and aggregates capacity in Arizona and California? How does it compare to historical levels? And if can we share our ramp-up plans for Arizona and California operations over the next quarters, considering the current market slowdown and pricing pressure? Okay. So Gerard, when we talk about cement utilization rate, and we really talk about the production also, we are in the Tehachapi plant above 70% of utilization rate. And in the Drake cement plant, we are over 90%. Please remember that the capacity in Drake is divided in 2 operations in the cement and the [ pozzolano ] grinding facility. So in Drake, we are at a higher utilization rate. When we talk about ready-mix and aggregates capacity, there is not really a utilization rate. We can adapt according to the market conditions. And we have been using our current capacity and being very cautious with the CapEx and investments in order to attend the demand that we are experiencing now. Regarding our plans for Arizona and California, as Pedro already mentioned, we are strengthening the management team, first of all. We have a new CEO in the North American operation, which is Rafael Villalona. And we are also working with him in a plan to improve our working capital needs and especially the cost structure of the plant. We have begun with some long-term energy contracts, which are very important in the California market, especially. And we are working in a lot of efforts in order to normalize the operations, especially now that Arizona has decreased, and we feel confident about the future of our operations in the U.S. I think, Rob, we don't have any other questions for the moment.

Okay. And there are no audio questions at this time. So at this point, I'd like to turn the call back over to management for closing comments.

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