UNACEM Corp S.A.A. (UNACEMC1) Q4 FY2025 Earnings Call Transcript & Summary

Greetings, and welcome to the Grupo UNACEM Fourth 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, Terry. 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 fourth quarter of the year. Later, Alvaro Morales, UNACEM's corporate CFO, will present the fourth quarter and full financials in detail. Please note that we may disclose on forward-looking statements related to Grupo UNACEM based on currently known facts, expectations and forecasts, circumstances and assumptions regarding future events. Many factors could be -- could cause the future result, 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 of this past quarter. Our consolidated EBITDA for the quarter, which reached PEN 418 million compared to PEN 434 million for the last quarter of 2024, which, in turn, included a PEN 40 million one-off revenue from CELEPSA. Compared to our normalized fourth quarter of 2024, excluding this one-off revenue, EBITDA for the fourth quarter of 2025 would have improved by 6.1% and margin EBITDA by 40 basis points. For the full year, EBITDA reached PEN 1,609 million, a marginal decline of 0.7% in normalized terms with margins in line with those of the fourth quarter of 2024. Noting the impact of foreign exchange conversion from U.S. dollars to soles of 10.4% during the quarter, full year EBITDA was USD 453 million, 2.5% above 2024, and it would have been 6.2% above 2024 in normalized terms. Finally, net profit for the year reached PEN 481 million, 2.4% above the 2024 results. Regarding our Peruvian operations with a GDP growth of 3.2% for the quarter, our markets have posted attractive volume growth up 10.6% in cement, 5. 5% in ready-mix and 21.4% in energy. As a matter of fact, our Latin American operations overall have performed quite well except for Ecuador that was affected by the 31-day strike in our area of influence. On the other hand, as we mentioned in our prior call, our U.S. operations are facing a slowdown in their markets. And although we have posted a 3.6% recovery in cementitious volumes, a 19.9% pickup in ready-mix and an 8.7% increase in aggregates. Prices are still declining. For the coming quarters, we expect a pickup in activity supported by demand from public infrastructure and commercial clients, especially in Arizona as well as an increasing market penetration of our [indiscernible] products. Regarding our debt structure. In December, we announced a refinancing of our long-term debt position related to the acquisition of Tehachapi. We successfully issued 2 series of municipal bullet bonds with a 20-year tenure at an attractive variable rate of 10 basis points above sulfur. The placement was oversubscribed by 4x. These transactions have improved our maturity debt profile substantially with 82% of our outstanding debt as long term aligned with our long-term strategy. Last but not least, we have an important milestone to share with you. Grupo UNACEM has been included in this year's S&P Global Sustainability Yearbook in the top 10% distinction category in the construction materials industry. This is an achievement that fills us with pride and it is a reflection of our consistent and thorough efforts to incorporate sustainability as a key part of our decision-making and strategy. 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. Alvaro?

Thank you, Pedro. Good morning, everyone, and thank you for joining us at today's conference. I am pleased to discuss our fourth quarter and full year financials. As Pedro mentioned earlier, despite the challenges in the U.S. market, our portfolio's performance as a whole has remained stable. During the first quarter of 2025 -- our consolidated revenues were driven by mixed volume performance across our operations. In Peru, cement and ready-mix volumes increased while Chile recorded a significant improvement in ready-mix volumes. Our energy platform also continued to expand. In the U.S., stronger segment volumes in Arizona offset lower volumes in California, resulting in overall cement growth for the quarter. Ready-mix volumes performing solidly supported by our operations in Las Vegas, and aggregates volumes increased by 8.7%. However, prices in the U.S. declined as we adjusted to a challenging competitive environment, even improving our market share. In Ecuador, volume decreased due to a situation beyond our control. Our operations were halted for 31 days during the quarter as a result of the nationwide strike. Overall, these dynamics resulted in revenue growth of 1.7% and compared to the first quarter of 2024. Full year consolidated volume showed mix by overall positive dynamics across markets. with strong momentum in Peru and Chile, partially offset by temporary disruptions in Ecuador. In Peru, cement volumes increased by 3.5%, supported by stronger regional demand. Our energy business posted a 10.4% increase in volume as our growth-oriented commercial strategies have been fruitful. As anticipated, ready-mix volumes declined by 9.9%, following the complexion of large infrastructure projects last year, including the new Jorge Chávez International Airport and the Shanghai Port and the new public schools. There are no significant infrastructure projects this year, and we will be focusing our efforts on the commercial and residential segments. In Ecuador, results were affected by the national strike. This slowed the growth that has -- that we had expected for 2025. In the United States, both cement and ready-mix volumes expanded by 4.9% and 7.2%, respectively, although aggregates volumes declined by 4.9%, in line with the market slowdown. In Chile, ready-mix volumes increased significantly by 40.4% and partially offset by a slight 0.4% decline in cement volumes. Overall, these trends resulted in a 2.6% increase in revenues compared to 2024. As you can see in the chart, the detailed performance in volumes was mixed. In Peru, during the quarter, cement dispatches registered 1.6 million tons an increase of 10.6% versus the first quarter of 2024 and a 2.4% sequential increase. This positive trend comes on the back of a solid demand during the second half of the year, aligned with a pickup in economy activity. Likewise, click export through the contact terminal were higher, reaching 254,000 tonnes, in line with the recovery of the Chilean market. Full year dispatches were 3.5% higher. Our ready-mix business in Peru recorded higher dispatch volumes during the quarter, reaching 604,000 cubic meters compared to 573,000 cubic meters in the first quarter of 2024. This 5.5% increase reflects organic client growth with a positive expansion of our client base. CELEPSA consolidated volumes sold increased by 21.8% compared to the fourth quarter of 2024. Energy sales reached 1,278 gigawatt hours. Full year energy sales increased by 10.4%, reaching 4,454 gigawatt hours. In Ecuador, Fourth quarter cement volumes decreased by 7.8% to 2,077,000 tons compared to 300,000 tons in the fourth quarter of 2024. Ready-mix dispatch volumes totaled 54,000 cubic meters, down from 64,000 cubic meters in the fourth quarter of 2024. In the U.S., our operations reported mix results. Arizona cement and aggregate volumes increased by 16% and 8.7% reaching 156,000 and 379,000 tons, respectively. On the flip side, California cement volume declined by 6.3%, reaching 159,000 tons for the quarter. Meanwhile, ready-mix volumes grew by 19.9%, reaching 245,000 cubic meters supported by the expansion in Las Vegas as date with lower prices. All in all, consolidated cement dispatches for Drake and Tehachapi grew by 3.6% during the quarter. Prices for cement and ready-mix have declined driven by market dynamics. Full year overall cement dispatches increased by 4.9% as California operations has a stronger first half of the year, while ready-mix increased by 7.2% and aggregates declined by 4.9%. In Chile, our operations continued to improve during the quarter, driven by a strong performance in ready mix. Volumes increased significantly to 304,000 cubic meters, up 35.6% year-over-year. This growth reflects our strengthening client portfolio and participation in emblematic projects, such as Line 7 of the Santiago Metro, the Americo Vespucio Oriente II Highway and mining projects, including [ Minera Arceros ] and Nueva Centinela. Cement volumes reached 143,000 tons represented a 7.3% decrease compared to the first quarter of 2024. Consolidated cost of goods sold increased by 2.8% in the fourth quarter of 2025, mainly driven by higher cement and ready-mix costs in Ecuador, due to increased energy and fuel expenses and lower fixed cost absorption amid lower volumes. In Chile, higher average cost in the ready-mix business reflected higher raw material prices, particular additives associated with higher strength ready mix for infrastructure projects and preoperating costs associated to the [indiscernible] project. This was partially offset by lower cement costs in Peru, supported by lower fuel costs, higher volumes and fewer overhaul days during the quarter. Full year cost of goods sold increased by 4.1% to PEN 5,261 million, leading to a reduction in gross margin from to 26.2% in 2024 to 25.2% in 2025. The increase was primarily driven by higher fuel energy and maintenance costs in the U.S. together with higher aggregates and added costs in Chile associated with better volumes sold and a higher share of high strength products in the sales mix. The energy platform costs also grew due to higher volumes at CELEPSA and higher fixed costs from Termochilca given that 2 months planned stoppage to carry out the main overhaul and turbine upgrade. These impacts were partially offset by higher economies of scale in UNACEM Peru. Our administrative expenses in the first quarter were 11.9% higher than in the first quarter of 2024, mainly due to higher advisory and consulting fees, as well as higher personnel expenses, mainly associated with the beginning of the rollout of our global business services to enhance operational efficiencies. As a percentage of revenues, Administrative expenses increased to 8.9% in the first quarter of 2025 compared to 8.1% to the fourth quarter of 2024. Full year administrative expenses increased by 8.1%, primarily driven by higher adviser and third-party services, supporting several products implemented across our business units, together with higher personnel expenses and software licenses. As a percentage of revenues, administrative expenses reached 8.1% in 2025, compared to 7.6% in 2024. Sales expenses in the quarter were 7.8% higher than in the first quarter mainly driven by higher commercial, marketing and personal expenses associated with a stronger sales activity. This increase was partially offset by lower bad debt accruals compared to the first quarter of 2024. As a percentage of consolidated revenues, selling expenses slightly increased to 2.6% in the first quarter of 2025 compared to 2.4% in the first quarter of 2024. Full year selling expenses increased by 13.4% in line with volumes. As a percentage of revenues, Selling expenses reached 2.2% in 2025 compared to 2% in 2024. In the first quarter of 2025, other expenses net totaled PEN 50 million, decreasing by 40.1% year-over-year. This variation was mainly driven by lower other income due to accounting adjusted related to IFRS 16 in the compared period of the fourth quarter 2 partially offset by other income from insurance indemnities in Peru and environment disbursement in the U.S. related to energy efficiencies. Additionally, other expenses were lower, given that in the first quarter 2024, we record adjustment for prior fiscal years. Full year other expenses net totaled PEN 16 million, decreasing by 64.8% year-over-year. This reduction was mainly driven by lower other expenses, reflecting the absence of 1 of terms recorded in 2024, including tax-related penalties and losses on asset disposals, partially offset by higher personnel expenses related to employee termination. Consolidated EBITDA for the quarter was PEN 480 million, which is 3.6% lower than the EBITDA of PEN 431 million in the first quarter 2024. However, normalized EBITDA increased by 6.1% year-over-year as the first quarter 2024 EBITDA reflects CELEPSA's PEN 40 million nonrecurring income. Additionally, it is worth noting the impact of foreign exchange conversion from U.S. dollars to soles of 10.4% during the quarter. Excluding the conversion effect, EBITDA will have been PEN 426 million. In other words, normalized FX neutral EBITDA will have increased by 8.1% in the fourth quarter 2025. 2025 full year EBITDA was PEN 1,609 million, 3.1% lower year-over-year. Once again considering a normalized EBITDA, full year results record a marginal decline of 0.7%. This was impacted by the performance of our U.S. and Ecuadorian operations, which were partially offset by stronger margins in the energy business and in our operations in Peru and Chile. Likewise, the foreign exchange conversion against Peruvian Sol impacted results. Without this effect, full year EBITDA will have amounted PEN 1,627 million, in other words, normalized FX neutral EBITDA will have increased marginally by 0.4% in 2025. If we analyze EBITDA in U.S. dollars terms, amounted to USD 453 million, 2.5% above 2024 and 6.2% in normalized terms. Financial expenses decreased by 3.6% in the fourth quarter 2025, primarily due to lower average debt levels and more favorable cost of short-term debt, including promissory notes. In 2025, financial expenses were 12.2% lower reflecting an improved cost of debt and the absence of nonrecurring financial expenses of PEN 40.9 million related to a tax process recorded in 2024. Foreign exchange in the quarter went from a loss of PEN 30.3 million in the first quarter of 2024 to a gain of PEN 29 million. Full year FX went from a loss of PEN 30.4 million to a gain of PEN 85.3 million. Net profit during the quarter amounted 145 million, 15.3% lower than PEN 171 million recorded in the fourth quarter of 2024. This decline was primarily driven by lower operating margins, partially offset by lower financial expenses and a favorable foreign exchange effect. Additionally, net income was impacted by higher income tax expenses, mainly due to a less favorable deferred tax effect compared to the fourth quarter 2024. For the full year, net profit reached PEN 481 million, representing a 2.4% increase compared to the prior year. This improvement was mainly supported by lower financial expenses and a favorable foreign exchange effect. Consolidated net debt recorded PEN 4.9 billion lower compared to the PEN 5.1 billion of 2024, driven by strong operating cash flow generation during the year which allowed us to reduce group debt while executing a higher level of CapEx. All in all, net debt-to-EBITDA ratio improved to 3.04x closing 2025, slightly above our 3x target and below the 3.08x in 2024. Our ratio are in line with our current financial covenants. In terms of maturity, short-term debt represents 18% and long-term debt, 82%. By the end of 2024, our short-term and long-term debt represented 41.6% and 58.4%, respectively. Today's new debt profile reflects a refinancing of PEN 1,812 million by UNACEMCO and UNACEM Peru, which was executed at the end of the first quarter 2025. In addition, during the first quarter of 2025, UNACEM North America refinanced $360 million of debt related to the Tehachapi acquisition, through the issuance of 2 series of municipal bonds with a 20-year tenor. The foreign currency exposure of total debt at the end of the first quarter 2025 was 10.3%. In terms of CapEx, disbursements totaled PEN 699 million, 23.7% higher than 2024. As we disclosed at the beginning of the year, for 2025 and 2026 will exceed historical levels as we deploy our sustainability initiatives. The main disbursements were related to projects such as a sulfur dioxide emission reduction system at kiln #1 in the Atocongco plant and the construction of the new clinker storage at Atocongco and Condrococha plant at UNACEM Peru. Gas suspension absorbed in Q1 and Q2 and the new primary in Atocongo. Additionally, CELEPSA investment will focus on asset modernization. Most notably, they complete a turbine upgrade at Termochilca in the second quarter of 2025, which added 18 megawatts of installed capacity. Investments all include machinery and mix traps at UNACEM North America and UNICOM Peru. The disbursements were also made for the construction of the calcium line plant which remain under development as planned. Thank you. That will be all from my side. Now we open the microphone for your questions.

[Operator Instructions] And Monica, it appears there are no phone questions. If you have web questions you'd like to take.

Thank you, Terry. Yes, we do. We have one question from Mariane Goñi from Credicorp Capital. Could you give more detail on the advisory personnel and nonrecurring termination case that pressure results this quarter? Also, we would appreciate any guidance you could provide for 2026, especially regarding Peru and the U.S.? I'm going to hand over to Alvaro.

Thank you for your question. 2026 GDP expectation for Peru is in the range of 2.9% to 3.5% increase. while private investment is expected to grow 3.5% and public investment 1%. This should support cement demand. Regarding ready-mix, demand should be supported by major infrastructure projects such as the Metro Line 2, the Santa Rosa Expressways and the [indiscernible] in the center highway, among others. In line with this, we are acquiring 112 additional tracks for our ready-mix fleet. Regarding the U.S., we expect the market to improve gradually started in the second quarter 2026 as we are already seeing activity in the commercial and public infrastructure segment. Additionally, our cementitious products, [indiscernible] are having a good acceptance in the market. Finally, regarding administrative expenses, as I mentioned, these are related to corporate projects part of our unlocking value stage of our strategic plan, for example, the implementation of our global business services unit. Thank you.

Thank you, Alvaro. We have another question from Giovanni Sánchez from Prima. Can you give us an update of the gas supply situation after the recent interruptions? How many days do you expect to be affected? And what is the expected impact on EBITDA margin? I'm going to hand it over to Pedro.

Thank you, Giovanni. This is Pedro speaking. With regards of the duration of the incident, we don't have more information than the rest of you. We rely on the information that is being provided by [indiscernible]. So we have to -- we are working with a scenario of 14 days, which is the public information that we all have. With regards to the cement business, you have to remember that our Condrococha plant does not use natural gas and our Atocongo plant uses natural gas, but it's also in the capacity of burning coal as well. So we do not -- and we have currently a large amount of clinker stock. So our dispatch will not be affected under operating costs should not be affected as long as the incident, the solution of the situation that doesn't exceed 14 days. If it were to prolong itself, if the situation were to extend itself, then we would probably start burning coal and our -- we would have slightly higher operating costs, but we don't expect that to happen as long as the incident takes 14 days. When it comes to the electric power business, the mutation is different. As you know, all the gas-fired turbines and generation facilities the depend on natural gas will have to, let's say, serve the market buying energy from the spot market at higher marginal costs, so in that regard, we're waiting to see how the authorities, let's say solve the situation. This is not new. Situations like this have happened before. So we are working with the trade association to see what the final impact of this will be for the generation -- electric power generation. Summarizing, no impact is foreseen for cement as long as this situation doesn't extend beyond 14 days.

We have a couple of questions from Gerard Forbes from Sura. Two questions. What are the expectations for clinker energy and logistics cost in 2026? And how should we think about EBITDA margin recovery? And can you share more detail regarding the Energy segment, particularly our 2026 outlook. I think Pedro already answered that. So Alvaro?

Yes. About our expectation for clinker energy and logistics cost in 2026. Well, in this current environment, we can expect volatility in oil prices because of the recent events in Iran and Israel and the U.S. war. So we are monitoring closely to see what can happen with our cost. And the other questions, the Pedro also answered the question related to the impact of the gas leak and the climate-related effect.

Okay. I think we have a couple of more questions, just a second. Okay. We have another question from Gabriel Ramos from Kaupa. North America's EBITDA declined year-over-year in dollars but increased when reported in soles. Could you tell us the main drivers behind the difference? Alvaro?

Gabriel, thank you very much for your question. We have just reviewed our numbers and both EBITDA dollars and soles declines. And maybe we can check of this conference to see the numbers in detail with you. But both declined.

Yes. Gabriel, I will follow up with you, so you have all the information available. Okay. We have another follow-up question from Mariane from Credicorp. If we can comment on our CapEx guidance and whether sustainability will be a key focus? Alvaro?

Yes. Thank you for your question, Mariane. In terms of CapEx, as we mentioned in this call, we are in a very quick execution, and we expect that to repeat the CapEx that we have in 2025. So we are willing to execute around PEN 700 million to PEN 800 million for the year. And it's -- and the projects what we have is a continuation of the project that we are executing in 2025. Thank you.

Okay. We have another follow-up question from Giovanni regarding how many days of stock -- of security stock of clinker, we have in the Atocongo plant?

Giovanni, the Atocongo plant has over 30 days of clinker inventory. But you have to remember that the Atocongo plant is also able to burn coal as fuel to produce clinker if necessary. So I mean, there is no constraint or restriction to the ticket production of the Atocongo. But in the meantime, we have over 30 days of clinker in stock.

Thank you, Pedro. I think there were some other questions, but they were already answered by Alvaro and Pedro in -- with some other participants' questions. Terry, we don't have any further questions.

All right. And we have no phone questions. So this does conclude our question-and-answer session. I'll turn the floor back over to management for closing comments.

Well, thank you all very much for your agenda this morning. It has been a very interesting session of Q&A. The thing of the leak of the natural gas of [indiscernible] has really got everyone's attention. I just want to give you the confidence that our cement operations will not be disturbed by this incident as a whole. And with regards to the energy power generation where it's an ongoing assessment of the total impact that it will have to the year. As I said, thank you very much for 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, ladies and gentlemen. Thank you for your participation. This does conclude today's teleconference. You may disconnect your lines, and have a wonderful day.