Grupo Carso SAB de CV

BMV:GCARSOA1

Earnings Call Transcript 2019-Q1

[Operator]

Good morning, everyone, and welcome to the conference call to discuss First Quarter 2019 Results of Grupo Carso.

Before we begin, I would like to remind you that this call is being recorded and that information discussed today may include forward-looking statements regarding the company's financial and operating performance.

All projections are subject to risks and uncertainties, and actual results may differ materially. Hosting today's conference today we have Mr. Arturo Spínola, CFO of Condumex and Carso Infraestructura y Construcción; and Ms. Angélica Piña of Investor Relations. Now I will turn the call over to Ms. Angélica Piña.

[Angélica Garnica, executive]

Thank you. Good morning, everyone, and thank you for your interest and your participation in this conference call. I will take you briefly through the first quarter's financial results and then we will take your questions.

Beginning the first quarter, we will be reporting the financial statement figures adopting changes in accounting principles related to leasing contracts, which had approximately a 2% impact in net income, mainly due to the leases of the stores of the Retail division.

Consolidated sales of Grupo Carso grew 6%, totaling MXN 21.5 billion. CICSA and Condumex were the main drivers for sales, posting a 23.3% and 8.6% increase related to claims of highways and greater cable volumes. Grupo Sanborns remained stable and the sales of the gas pipelines in Waha in Carso Energy do not consolidate.

Operating income was the same as the previous year, while EBITDA increased 2.1%.

Profitability improved with less expenses related to leasings due to changes in accounting principle as well as the extraordinary revenues mentioned coming from the infrastructure division.

Controlling net income increased 30.1% with a better financial cost and dividend from associated companies, Elementia and GMexico Transportes.

By division, the total sales of Grupo Sanborns were MXN 11.4 billion, growing 0.8%, due mainly to the performance of recently opened stores.

In the first month of the year, there was lower consumer spending and less aggressive promotions in clearance sales.

The same-store sales of Sears, Sanborns and Promotora Musical were negative 2.2%, 0.7% and 5.1%, respectively.

The gross margin remained stable in [ 39.4%. ] Operating expenses increased 5.4% with higher energy rates, higher payment of salaries, wages and provisions for nonperforming loans on the credit portfolio.

Operating income and EBITDA decreased 14.3% and 5.2%, respectively.

Grupo Condumex reported sales of MXN 7.9 billion, adding MXN 628 million more, which represented an increase of 8.6%.

This included higher volumes in telecom cables in the domestic market as well as building wire and transformers in the construction sector, also higher volumes of automotive cables. Operating income and EBITDA decreased 3.4% and 0.6%, respectively, with margins reducing 160 and 130 basis points. This lower profitability was due to auto part with higher logistics and startup costs and higher operating expenses from salaries at the new platforms.

On the Infrastructure and Construction division, CICSA posted MXN 4.1 billion in revenues, increasing 23.3%.

This can be explained by the following reasons: The infrastructural sector, which recorded extraordinary income due to high reclaims; Pipeline installations, which increased in telecom projects; and the manufacturing and services for the oil and chemical industry with higher drilling work in their thermal wells.

For these same reasons, operating income and EBITDA went up 19.8% and 11.9%, respectively.

The backlog of CICSA reached MXN 22 billion compared to MXN 12 billion a year ago.

The mix of projects currently in place are the [ tail ] in its final stages, the Las Varas-Vallarta highway, various real estate projects, telecom facilities, the Chihuahua gas pipeline and the highway projects of Los Chinamos-El Ayote road in Nicaragua and Corredor de Las Playas in Panama.

Lastly, sales of Carso Energy totaled MXN 14 million related to the production and commercialization of oil in Columbia.

The quarterly operating income was a loss of MXN 1 million, while the EBITDA totaled MXN 163,000, both improving from losses of MXN 9 million and MXN 6 million last year because of lower SG&A and other income.

The Waha-Presidio and Waha-San Elizario gas pipelines, where we have a 51% participation, received rents of MXN 121 million from gas transportation.

However, the revenues are not reflected in consolidated sales. The Samalayuca-Sásabe gas pipeline in Chihuahua carried on its construction this quarter.

With this, I finish my general comments to proceed to the Q&A session. Thank you.

[Operator]

[Operator Instructions] And our first question comes from [indiscernible].

[Unknown Analyst]

Could you please tell us a little bit about your perspectives for this year, particularly in the -- in infrastructure division and also in the consumer side? We have seen the consumer division relatively weak, particularly in your high-end [ performance ]. And also what do we expect in Infrastructure division, please?

[Arturo Spínola García, executive]

You comment on that briefly.

[Angélica Garnica, executive]

Okay. [indiscernible] well, about presales, we have in Promotora Musical in iShop last year, in October, a very aggressive promotion with Apple where with a specific bank we have a 12-month promotion. So you can renovate your iPhone, let's say, and change your iPhone for a new one and then pay for 12 months.

So that aggressive promotion gave us in October around MXN 220 million additional, which is a very high number of sales. So we had lower sales in November and December and in this first month of the year as well.

We are, again, replicating this promotion in April, but we think that, that was the case. Also, in MixUp, there weren't as dynamic sales in the last quarter. We have changed the display or the products in MixUp. You know that we are no longer selling only accessories. It's more gadgets and hoverboards and music items. So -- but we didn't sell that much in the fourth quarter.

However, we expect this second quarter to improve the sales also, well, with Apple and with this promotion that I was telling you and the plans of buyback, well, this is the plan of buyback, and other promotions with loyalty with customers.

[Unknown Analyst]

Okay. And we have seen very a high consumer confidence that mainly this quarter is not reflected, but then we can be more optimistic in the commercial division for the year-end. That's right?

[Angélica Garnica, executive]

Yes. In fact, we are -- we have a confidence in the Retail division. That's why our CapEx is MXN 2.8 billion for 2019.

It mainly includes the 20 openings of iShop stores. We have already opened in the first quarter 9 units. There are remaining 13 more and also renovations. So that's the confidence that we have in the performance. And regarding Sears and Sanborns, we are only renovating stores, expansions and renovations this quarter, no new openings of combined stores. So -- and I think it's a confidence but also being careful with the credit, taking care of the NPLs because of the interest rate.

[Unknown Analyst]

Okay. And regarding the infrastructure division. What can we expect for the rest of the year? You mentioned that there were some extraordinary events that happened during this quarter. What can we expect for the rest of the year?

[Arturo Spínola García, executive]

Yes. [indiscernible] actually the extraordinary income for this quarter was related with a highway [indiscernible] last year, but we have the policy to recognize the cost. But just when we get the claims, we recognize the income.

The rest of the year, we would take a better performance than the last year because we find -- we found the way to consolidate our participation in the Panama project, I mean, the 2 highways, which we are constructing with the FCC. We are talking about almost $1 billion, and 50% of that is for us.

On the other hand, installation division is growing, and we expect to maintain that level for the rest of the year.

And then, we expect a better performance. Not at this quarter because this quarter is extraordinary because of the claims that we recognized in this quarter, but yes, it is going to be a little bit better than the previous year.

[Operator]

[Operator Instructions] And our next question comes from Miguel Ulloa with BBVA.

[Miguel Ulloa Suárez, analyst]

The first one would be regarding the margin contraction in Condumex. Could you provide some color? And then probably in a little bit more uptake your expectations for the coming quarters?

[Arturo Spínola García, executive]

Miguel, because of the lack of construction project in this quarter, we are watching a less construction cable consortium. Then the prices are down, and we are looking for those other markets. I think, maybe, in rest of the year, we can't recover that margin, but we are trying to compensate with telecommunications cable, automotive cable and other kind of products in which we are looking a better performance.

In the case of construction, there are some projects that we expect to provide in this period, but they are stopped now. And we are looking for the next month maybe that the new government clarify the new procedures for the projects of buildings and other kind of constructions. But we think the margin of the construction cable maybe is going to maintain this level for the next month. But we are confident to compensate with the other lines in Condumex that we are growing, as the telecommunication and automotive cables.

[Miguel Ulloa Suárez, analyst]

Okay. That's clear. And the second one would be regarding the EBITDA. Do you have an idea or could you give us some idea of the EBITDA without the new accounting principle? How much would that have been?

[Arturo Spínola García, executive]

Did you mean the EBITDA of Condumex? Or the...

[Miguel Ulloa Suárez, analyst]

The consolidated EBITDA for Carso without IFRS 16.

[Arturo Spínola García, executive]

Well, I will say our actual numbers are considering the new IFRS 16. And we are looking for around 15 -- among 14% and 15% for the rest of the year, and we have around 2 points against the last -- the previous accounting principle. I don't know if you are talking about that. The difference is we consider the past -- the previous IFRS and the present one.

[Miguel Ulloa Suárez, analyst]

Yes, I was referring exactly to that, the EBITDA margin without the IFRS 16.

[Arturo Spínola García, executive]

Yes. More or less, we are talking about a MXN 1.2 billion of difference for the rest of the year, more or less by quarter -- no, sorry, by the year. I mean, if we are breaking around MXN 50 billion, more or less 2 or 3 points are -- are result of the implementing of IFRS 16, mainly in Grupo Sanborns because in the case of Condumex and CICSA and Energy, we don't have an important impact. The major impact, the higher impact is in the case of Grupo Sanborns.

[Miguel Ulloa Suárez, analyst]

Okay. And then finally, the last question would be regarding the extraordinary revenue recorded in CICSA from [ past ] projects. Could you give us an idea of how much was this about? And just in order to have the right numbers.

[Arturo Spínola García, executive]

Do you mean the amount?

[Miguel Ulloa Suárez, analyst]

Yes.

[Arturo Spínola García, executive]

Okay. We are talking about almost MXN 200 million.

[Operator]

[Operator Instructions] And there are no further questions at this time. I would now like to turn the conference back over to Ms. Piña for any closing remarks.

[Angélica Garnica, executive]

Thank you very much for your interest in the conference of Grupo Carso. We will also be taking the questions in the Grupo Sanborns conference at 11:00 Mexico City time if you have additional details. Thank you, and have a good weekend.

[Operator]

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.