Grupo Carso SAB de CV

BMV:GCARSOA1

Earnings Call Transcript 2021-Q1

[Operator]

Good morning, everyone, and welcome to the conference call to discuss the results of the first quarter 2021 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 this conference today, we have Mr. Arturo Spinola, CFO of Condumex and Carso Infraestructura y Construcción; and Ms. Angelica Piña of Investor Relations.

I will now turn the call over to Ms. Angelica Piña. Please go ahead.

[Angélica Garnica, executive]

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 financial results, and then we will take your questions.

Consolidated sales of Grupo Carso improved 12%, totaling MXN 26.8 billion. Grupo Condumex posted a 30.8% increase related to higher volumes in cables and automotive harnesses, combined with higher sales prices due to variations in copper and in ForEx rate. Carso Infraestructura y Construcción increased its revenue 3.8% from an increase in onshore drilling, the progress in the construction of oil platforms and marine infrastructure units for Pemex and inclusion of the Train Mayan project.

Carso Energy also increased recording additional MXN 316 million in revenues from the incorporation of the 2 hydroelectric plants in Panama. However, Grupo Sanborns decreased its sales 6.6% as department stores and restaurants were closed again since mid-December until February due to the COVID-19 health restrictions. Consolidated operating income and EBITDA went down 6.1% and 2.2%, respectively, with a higher cost of sales where the store closures had a negative impact in Grupo Sanborns.

The profitability of the other 3 divisions improved. Grupo Condumex increased 42.4%, Carso Infraestructura y Construcción 10% and Carso Energy's income rose from negative $50 million to positive MXN 173 million. The consolidated controlling net income totaled MXN 1.9 billion, falling 7.7%, reflecting mainly a cost

[Technical Difficulty]

[Operator]

Pardon me, ladies and gentlemen, we are experiencing a technical difficulty. Please stand by while we reconnect.

[Angélica Garnica, executive]

Sorry about the disconnection. The consolidated controlling net income totaled MXN 1.9 billion, falling 7.7%, reflecting mainly a positive comprehensive financial result, was 97.3% lower than last year due to ForEx variations.

In the breakdown by division, the total sales of Grupo Sanborns was MXN 10.6 billion, decreasing 6.6%. Sears and boutiques and Sanborn decreased 18.9% and 25.5% in total sales, respectively. While mix of iShop and other formats increased 36.2% and 212.3% is total sales, respectively.

These results reflected a decline in customer's traffic from lockdown measures introduced in mid-December to February in Mexico City and the state of Mexico, where 42% of the points of sale are located. Customer service continued through digital channels with a growth in this quarter of 3.5x in e-commerce. The retail gross margin decreased from higher demand of technology and electronic items, while big ticket, fashion and restaurant consumption fell.

Expenses were controlled, comprising less rent, energy and water consumption, sales commission, expansion, expenses and fees as well as travel and depreciation. The operating income was a loss of MXN 196 million while EBITDA was MXN 331 million and reduced 69%.

Regarding the Industrial division, Grupo Condumex posted a 30.8% sound improvement. This was due to higher volumes in the domestic and export markets in cable as well as in the automotive manufacturing plants combined with higher prices of the average exchange rate and copper.

The telecom division showed less dynamism in copper, fiber optic and coaxial cable. While the construction division had better volumes of energy and power cables. The operating income and EBITDA of the Industrial division went up 42.2% and 37.5%, respectively. Controlling net income increased 2.5%, totaling MXN 1.1 billion, mainly driven by the better operating results mentioned previously.

Carso Infraestructura y Construcción posted MXN 5.4 billion in revenues, increasing 3.8% due mainly to the manufacturing and services for the oil and chemical industry division. With more land drilling contracts for repairing oil wells, the progress in the construction of the Maloob-E and Maloob-I oil platforms and 3 marine infrastructure units. In the Infrastructure division, the Mayan Train Section 2 reports a progress in its construction.

The Pipeline Installation division decreased 21.4% due to reduction of work in gas pipelines and civil construction, and housing division projects were affected by the sanitary contingency. The operating income and EBITDA in Carso Infraestructura y Construcción increased 10% and 8.9%, respectively, supported by a higher sales mentioned before in onshore drilling and the construction of the structures and equipment.

The backlog reached MXN 38.5 billion compared to MXN 34.6 billion a year ago. The projects currently in place are the Las Varas-Vallarta and Mitla-Tehuantepec highway, telecom installation services, the oil and marine platforms, diverse services and equipment for the well drilling industry and, most recently, the platform and track for Section 2 of the Mayan Train from Escárcega to Calkiní in Campeche.

Lastly, the sales of Carso Energy totaled MXN 447 million, where additional revenues came from the 2 hydroelectric plants in Panama and the beginning of the Samalayuca-Sásabe pipeline. The quarterly operating income improved from a loss of MXN 50 million last year to a gain of MXN 173 million this year. EBITDA improved reaching MXN 268 million. The construction of the Samalayuca-Sásabe gas pipeline finished in the third quarter of 2020. And since February of this year, the gas transportation service is available.

The Waha-Presidio and Waha-San Elizario gas pipelines, where we have a 51% participation, received rents from gas transportation. However, the revenues are not reflected in consolidated sales.

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

[Operator]

Operator Instructions] Our first question comes from Miguel Ulloa with BBVA.

[Miguel Ulloa Suárez, analyst]

And the first one would be regarding the Industrial division Condumex. Could you provide some color on the 30% increase in total revenues? And if you're expecting something similar in coming quarters and the expected impact in profitability going forward?

[Arturo García, executive]

Miguel, regarding the Industrial division, the increase is mainly due to the copper price, as you know, since the first quarter of 2020. And this one, we have an increase of around 50%. Then the main reason of that increase is the copper price.

But on the other hand, the volumes in the case of construction and the automotive sector, we are increasing around 8% to 10%. Both in the case of the telecom products, we have certain reduction.

Then we expect to maintain this level of profitability in the Industrial sector, but not more increases. Because, as I said, that is a consequence of the copper price and -- I mean, if the copper price maintains the level, we are going to maintain this level of sales. But if the copper price decrease, maybe we can reduce our sales. But the margin, I -- we expect to maintain the same level of the last year.

[Miguel Ulloa Suárez, analyst]

That's useful. And the second one, if I may, could be regarding the backlog of CICSA. I don't know if my numbers are okay. I think there's a MXN 10 billion reduction, but I'm not really sure about it. How does it play going forward?

[Arturo García, executive]

Yes. As you know, the main reason of the reduction is in the Installation division. I mean a 1,000 -- MXN 9,000 million. But that is because of the kind of restructure -- a kind of duration of our main customer. I mean our main customers are dividing certain part of the infrastructure investment.

And then we lost part of the purchase order, part of the contract, but that is temporary. I mean once the new company that is taking part of the infrastructure of our customers organize the investment for this year, we expect to recover the big part of that backlog that we lost in -- because of that restoration of our customer. I mean and I expect that is a temporary situation because of that separation of functions of our customers.

[Operator]

Our next question comes from Alejandro Azar with GBM.

[Alejandro Azar Wabi, analyst]

I have only 2. The first one is a follow-up on Miguel's. On your backlog, how much of those MXN 38 billion comes from the oil platforms? And when do you expect the completion of those oil platforms that you are currently bidding in CICSA?

[Arturo García, executive]

Alejandro, regarding our oil backlog, talking about the platforms, our backlog is not important at this time. I mean we have backlog from the platforms around MXN 300 million. I mean we are in the final part of that project. We are finishing, I mean, in this second quarter, we must finish the platforms and the recognition of the income regarding the platform. But the backlog regarding the platform is very new. It's not important at this time.

[Alejandro Azar Wabi, analyst]

Excellent, Arturo. And then a follow-up on that one. So what is making you grow so much in the manufacturing and oil service and the petrochemical division? What are you seeing there? I thought this was one of the big reasons.

[Arturo García, executive]

Yes. We are finishing the platforms, but on the other hand, we have new contracts regarding equipment -- I mean, equipment that we use -- that they use in the chemical industry. In this case, is mainly for the Dos Bocas refinery. And I mean we are suppliers for the contractors of the Dos Bocas suppliers, and we have a good level of purchase orders.

I mean we can reach $100 million of equipment for that refinery. That is the main reason of the growth of that backlog in this division of Carso Infraestructura.

[Operator]

There are no further questions at this time. I will turn the call back over to Ms. Piña for any closing remarks.

[Angélica Garnica, executive]

Thank you very much for your interest and your participation in this conference call. We look forward to speaking with you. Thank you.

[Operator]

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