Grupo Carso SAB de CV

BMV:GCARSOA1

Earnings Call Transcript 2022-Q1

[Operator]

Good morning, everyone, and welcome to the conference call to discuss the results of the first quarter 2022 of Grupo Carso. Before we begin, I would like to remind you that this call is being recorded and that the 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 Pina of Investor Relations. And I will now turn the call over to Ms. Angela Pina. Please go ahead.

[Angélica Garnica, executive]

Thank you, Tom. Good morning, everyone. 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 for Grupo Carso increased 28.4% totaling MXN 34.5 billion. This was mainly due to Grupo Sanborns, which posted a 29.5% increase with customers returning to department stores and restaurants compared to last year. Condumex also stood out by growing 14.9% related to higher stable volumes in the domestic and export markets, combined with higher sales of harnesses.

Carso Infraestructura y Construcción went up 41.4% due to high infrastructure and [indiscernible] projects. Carso Energy also increased, recording additional MXN 501 million in revenue from gas transportation services from the Samalayuca-Sásabe gas pipeline.

Consolidated operating income increased from MXN 2 billion to MXN 3.8 billion, and EBITDA went up 61.6% with a better gross margin improving 1 [ convert ] and 30 basis points and operating leverage with administrative expenses controlled, reducing the percentage of sales from 15.6% to 13.3%.

The main contributors to profitability were Grupo Sanborns, which improved from an operating loss last year; and Carso Energy, which increased 236.5%. Carso Infraestructura y Construcción improved 56.7%. The Grupo Condumex grew 14.7%. EBITDA goes up MXN 688 million, higher than MXN 258 million a year ago. The consolidated net income increased 580.9% reflecting mainly the improved operating results.

Explaining the performance by division. The total sales of Grupo Sanborns were MXN 13.5 billion, increasing 29.5%. These results reflected better mobility in Mexico City and the metropolitan areas. [ ES ] grew 37.2% in total sales; Sanborns, 42.1%; and [indiscernible] of 19.4%.

Even though the main drivers were categories such as electronics, technology and [ wide line ], a better performance was observed in higher margin category such as prepared food, casual and formal clothing and shoes. The retail gross profit increased 35.4% and the gross margin improved from 23.3% to 24.6%. Operating income totaled MXN 3.8 million compared to MXN 2.5 million last year. EBITDA improved 228.3% and net income reached MXN 491 million compared to a loss of MXN 196 million in the first quarter of the previous year.

Regarding the Industrial division, Grupo Condumex posted a 14.9% improvement totaling MXN 12.3 billion. This increase came from the telecom and construction sectors with higher cable sales volumes in most of the plants and higher copper prices. The operating income and EBITDA for the Industrial division went up 14.7% and 12.4%. Controlling net income decreased from MXN 1.1 billion to MXN 1 billion this year driven by effects of the dollar.

Carso Infraestructura y Construcción posted MXN 7.6 billion in revenue, increasing 41.4%, the division that had the best performance work; infrastructure with a 117.8 increase due to the second section of the Mayan train and 2 highways. Manufacturing and services for the oil and chemical industry was a 60.6% increase from fluids, directional drilling and reverse of oil wells as well as deep well drilling contracts. Structures and equipment includes the manufacturing of equipment for the petrochemical industry.

Pipeline installation grew 16.2% due to telecom projects. Civil construction and housing decreased. These works were at a high point of execution last year and now happening.

The operating income and EBITDA in Carso Infraestructura y Construcción increased 56.7% and 43.7%, respectively. Controlling net income increased 53.7% from the operating results of the ForEx situation in some businesses.

The projects currently in place are the Las Varas-Vallarta and Mitla-Tehuantepec highway, telecom installation services, equipment for the petrochemical industry, deep well drilling for Pemex, value services and equipment for the oil industry and the Escárcega Calkiní section 2 of the Mayan train. The value totaled MXN 43.3 billion compared to MXN 38.5 billion a year ago. The sales of Carso Energy totaled MXN 948 million where additional revenue of MXN 501 million came from the Samalayuca-Sásabe pipeline and, to a lesser extent, from the 2 hydroelectric plants.

Operating income and EBITDA increased 236.5% and 152.6%, respectively. The Waha-Presidio and Waha-San Elizario gas pipeline in Texas, U.S.A., where we have a 51% participation received [indiscernible] from gas transportation. However, the revenues are now reflected in consolidated sales. With this, I finish my general comments to proceed to the Q&A session.

[Operator]

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

[Miguel Ulloa Suárez, analyst]

The first one would be regarding the outlook for each of the divisions of Carso, what you're expecting for the year and which are the main concerns going forward.

[Arturo García, executive]

Hi, Miguel. Good morning. Actually, we are planning on the 2022 year with sales at 12%, 13% above the previous year, but maybe we can achieve a little more because, in this quarter, we are increasing our budget. Then in the case of Condumex, maybe we reach around 10% increase against the previous year, in the case of [indiscernible] around 8%.

And Grupo Sanborns keeps going better. We don't have new numbers, but our budget talkies about a 14% increase. And at Grupo Carso, maybe about 11% and 12% increase in sales, and maybe we can reach a little more, as I said, because the CFE is going better than we expected. And we are getting new businesses, as indicated, Condumex and CICSA and in the case of Grupo Sanborns, the public is back in the stores, and we are getting better numbers. That is our expectation, Miguel.

[Miguel Ulloa Suárez, analyst]

And regarding profitability, what kind of margins are you expecting for each of the divisions?

[Arturo García, executive]

Yes. In the case of operating income, we are talking about 11%, maybe a little more. In that case, the copper price and other facts can change a little our expectation but we think no lower than 11% and maybe it's going to be a little more than 11%. Talking about operating profit and EBITDA around 13%, that is our operating expectations. Thank you, Miguel.

[Operator]

[Operator Instructions] The next question comes from [ Emilio Petteta ] with GBM.

[Unknown Analyst]

Congrats on the results. We noted that Carso Energy's EBITDA margin has fallen to 70% from 85.6% when compared to the last 3 quarters. So my question is what is the driver here that we has at all on your profitability levels. And what EBITDA margin can we expect going forward?

[Arturo García, executive]

In the case of Carso Energy, we expect to maintain the EBITDA margin that we have in this quarter because we have just 2 businesses in these consolidated numbers that are from the Samalayuca-Sásabe pipeline and the related plant in Panama. And in that case -- in the case of the pipeline, we have fixed income contract with the CFE. Then -- and the cost of the mine operation and maintenance of the pipeline is almost fixed. Then the margin that we expect in this sector is the same that we reached in the first quarter.

Maybe for the future, we can have changes because we are now investing in compression extensions for the Gasoducto for the Samalayuca-Sásabe pipeline both in the rest of this year. We are -- we think we are maintaining the operating profit and EBITDA levels that we are showing this quarter.

[Operator]

[Operator Instructions] The next question comes from Alejandro Azar with GBM.

[Alejandro Azar Wabi, analyst]

I just have one question. This is related to Elementia and Fortaleza and going private. Did you hold a big stake there? What are your thoughts on that all going private? And could you give us some color on that? Are you planning to hold that privately or sell it in the near to long term?

[Arturo García, executive]

Hi, Alejandro. Good morning. As many of you know, Elementia and Fortaleza is getting out of the market. And [indiscernible] , we finished the IPO that got a -- with that, we are leaving the market formally. But now we are diffusing with our partners in that company in order to define the future. We are maintaining our participation that we are discussing with them in order to define -- awarding the future plans.

We are needed to reach an agreement with them, and maybe soon, we will inform the market the next steps for Fortaleza and Elementia. The idea is that, that company is keeping in our -- in the hands of the controlling partner, and we are now just the same in the [ retail ]. And mainly in the next days, we will inform you, Alejandro.

[Alejandro Azar Wabi, analyst]

And one more, if I may. On your backlog -- on the seasonal backlog , the MXN 43 billion, how much of that is employers in consortium with other parties?

[Arturo García, executive]

That number is just for us, Alejandro. I mean we have projects at the Mayan train with partners, but we have not included in that number the backlog corresponding to our partner. Then that number is 400% [indiscernible].

[Operator]

[Operator Instructions] We have a follow-up from Miguel Ulloa with BBVA.

[Miguel Ulloa Suárez, analyst]

Just a follow-up regarding the compressor. When do you expect the compressor to grow operational or to start operations?

[Arturo García, executive]

Hi, Miguel. The idea is to have it operational maybe at the end of the new year. That is the idea. We -- that gets more than 1 year in order to be ready, both operational and maybe at the end of the new year.

[Miguel Ulloa Suárez, analyst]

And the economics of this, so the CapEx for this, and we expect to increase in income and profit, how should we think about it?

[Arturo García, executive]

Yes. The CapEx for that is around $80 million. And we've been increasing the capacity of the pipeline in -- around 40% and 50%. Then, the profitability could be very important because with the margin CapEx, we get an important increase in the capability. I mean maybe you can increase a $2 million or $3 million a month income with that investment but all depends on the market and [ all that matters ]. But we have no doubt about the profitability of that investment. But [ that ] are the main drivers, $80 million. And we are increasing amount 40% and 50% the capacity of the pipeline.

[Operator]

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

[Angélica Garnica, executive]

Thank you for connecting to the conference call. If you need additional information, you can reach us. Have a good day.

[Operator]

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