Grupo Carso SAB de CV
BMV:GCARSOA1

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Grupo Carso SAB de CV
BMV:GCARSOA1
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Price: 117.02 MXN 1.42% Market Closed
Market Cap: 263.9B MXN
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Earnings Call Transcript

Earnings Call Transcript
2021-Q2

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Operator

Good morning, everyone and welcome to the conference call to discuss the results of the second 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.

A
Angélica Garnica
executive

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

Consolidated sales of Grupo Carso improved 103% totaling MXN 30 billion. Grupo Sanborns posted 197.1% increase compared to last year when all department stores and most restaurants were closed from March 31 to May 23, 2020. Condumex stood out by growing 102.2% related to higher volumes in cables and automotive harnesses, combined with higher sales prices in copper. Carso Energy also increased, recording additional MXN 712 million in revenues from gas transportation services from the Samalayuca-Sásabe gas pipeline. Carso Infraestructura y Construcción decreased its revenues 2.8% due to the completion of the construction of oil platforms and the gas pipeline.

Consolidated operating income increased from MXN 295 million to MXN 3.3 billion, and EBITDA went up 249.8% with a better gross margin, improving 40 basis points mainly in the Industrial division. And expenses being controlled across the board, reducing as a percentage of sales from 23.3% to 14.8%. The profitability of the Retail division improved from a loss of MXN 1.1 billion to a profit of MXN 429 million. And Grupo Condumex and Carso Energy improved 232.3% (sic) [ 232.4% ] and 1,136.5%, respectively. Carso Infraestructura y ConstrucciĂłn's operating income went down 34% due to the completion of projects mentioned before.

The consolidated controlling net income totaled MXN 2.6 billion, growing from a loss of MXN 49 million last year, reflecting mainly the improved operating results and lower financial expenses due to ForEx positive variations in this quarter.

In the breakdown by division, the total sales of Grupo Sanborns were MXN 12.1 billion, increasing 197.1%. These results reflected better customer traffic from the reduction in lockdown measures introduced from April to June this year, with higher allowed capacities at Sears stores and the expansion in operating hours in Sanborns restaurants, mainly in Mexico City and the state of Mexico where 42% of the points of sale are located.

The Retail gross margin decreased from higher demand of technology, electronic items and white goods compared to lower credit income, fashion and restaurant sales. Expenses were controlled such as commissions on sales, leasing, electricity, bank commissions, maintenance expenses, royalties, delivery services and advertising. The operating income and EBITDA improved from losses of MXN 1.1 billion and MXN 664 million to profits of MXN 429 million and MXN 918 million, respectively.

Regarding the Industrial division, Grupo Condumex posted a 102.2% sound improvement totaling MXN 11 billion. This was due to higher volumes in all sectors with higher demand in the domestic and export markets in cables as well as in the automotive manufacturing plants, combined with higher prices of copper.

The telecom division showed dynamism in copper, fiber optic and coaxial cables, while the construction division had better volumes of energy and power cables. The operating income and EBITDA of the Industrial division went up 232.3% and 172.2%, respectively.

Controlling net income increased from MXN 84 million last year to MXN 1 billion this year, driven by the better operating results and positive ForEx variations. Carso Infraestructura y ConstrucciĂłn posted MXN 6 billion in revenue, decreasing 2.8% mainly from the Pipeline Installation division, which fell 21.2% from the reduction of works in gas pipelines.

Manufacturing and services for the oil and chemical Industry division recorded the fabrication of equipment for the Dos Bocas refinery and more land drilling contracts for repairing oil wells, offsetting the conclusion of the construction of the Maloob-E and Maloob-I oil platforms and 3 marine infrastructure units.

The Infrastructure division increased 19.6% its revenues, including the progress in the Maya Tren Section II construction and higher production in Mitla-Tehuantepec. Civil Construction and housing division projects reduced affected by the sanitary contingency. The operating income and EBITDA in Carso Infraestructura y ConstrucciĂłn decreased 34% and 31%, respectively, on lower profitability due to the mix of projects.

The backlog reached MXN 34.5 billion compared to MXN 42.7 billion a year ago. The projects currently in place are the Las Varas-Vallarta and Mitla-Tehuantepec highway, various real estate projects, telecom installation services, equipment for Dos Bocas and various services and equipment for the oil industry and the Escárcega-Calkiní section of the Mayan train.

Lastly, the sales of Carso Energy totaled MXN 989 million, where additional revenues came from the transportation services from the Samalayuca-Sásabe pipeline. The quarterly operating income and EBITDA improved from MXN 60 million and MXN 168.6 million to MXN 743 million and MXN 837 million, respectively. 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 Vidal Lavin from BlackRock.

V
Vidal Lavin
analyst

Could you please give us some guidance regarding the CapEx? How much do you expect that it will be this year? We have seen that it has been decreasing in the recent quarters. And also, if you can comment a little bit about the shares buyback, if you expect to cancel what you have bought that is around 1.5% of the equities shareholder.

A
Angélica Garnica
executive

Well, regarding the CapEx of Grupo Sanborns, just starting with the Retail division, we don't have increases in CapEx. It should be less than MXN 500 million in this year. And just to improve the logistics [ TI system ], as we have said in other conferences about the Alibaba logistics platform that we bought recently and that we are installing it in Sears and Sanborns for improving the inventory management, that would be all and no CapEx for opening new stores. And then Arturo will tell you for the other division.

A
Arturo GarcĂ­a
executive

Vidal, regarding the other divisions, I can tell you about the Condumex Industrial division has CapEx for this year around $60 million, that is to actualize the technology of the facilities. And you see the reduce of the CapEx of the group because of the termination of the pipeline in the north of Mexico, I mean the Samalayuca-Sásabe pipeline that we finished last year. And now we are investing in the oil wells for our own -- oil camps in Mexico in Veracruz state but just in the exploration phase.

I mean as we finish the exploration phase, we are going to have the needed information in order to define the CapEx for the next phases. I mean if we have good news, the CapEx for that oil camps could be important for the rest of the year. But I think we are going to have information maybe at the fourth quarter of this year in order to define the CapEx for that project. In the case of CICSA, we have no important CapEx.

As you know, as a construction company, we just invest in overhauls or just some equipment for the installation of air ducts, but we don't have an important CapEx. I mean around $50 million that is our -- sorry, $7 million. And in the case of Carso Energy, it all depends on the -- of the authorization that we are expected in the case of [ geothermical ] energy and the results of the exploration phase in our oil camps. That is that we have regarding the CapEx.

V
Vidal Lavin
analyst

Sorry, how much it should be for Grupo Carso?

A
Arturo GarcĂ­a
executive

Carso is how much?

V
Vidal Lavin
analyst

Sorry, for Grupo Carso, how much it will be?

A
Arturo GarcĂ­a
executive

The totaled around $100 million. But it could be an increase in the case of the oil camps, but we don't have the numbers yet.

V
Vidal Lavin
analyst

Okay. And the other question is regarding the buyback of the shares. It's around 1.5 of the equity shareholders. So if you plan to cancel them in the future or want to give liquidity to the market again?

A
Arturo GarcĂ­a
executive

We are planning to maintain the strategy at least for the next quarter. And we are going to wait to the response of the market. As you know, the share has certain pressure, but we are going to maintain at least for the next quarter. And based on the results, we are going to review the strategy.

Operator

The next question comes from Miguel Ulloa from BBVA.

M
Miguel Ulloa Suárez
analyst

The first one would be regarding your expectations for the second half of the year, especially for Condumex and Carso Energy. Is there something new that we should consider or the contracts are going to be in place for the rest of the year? Or you are expecting some decreases in the activity?

A
Arturo GarcĂ­a
executive

Miguel, regarding Carso Energy, we expect to maintain its number very similar than the first semester. As you know, we began with the Samalayuca-Sásabe pipeline in this year. And the rents are the same for the rest of the year. And the production of the Ideal Panama, our hydroelectrical plant are -- we are expecting at the same levels that the first semester. Then the revenues of Carso Energy must have the same level as the first one.

In the case of Condumex, we are expecting maybe a certain decrease in the case of the automotive sector because of the lack of components. As you know, the automotive plants are having problems because of the lack of the component for sensors, another automotive part.

In this week, GM is in technical stops and maybe Audi is going to have stops in the next weeks and that could affect our revenues. But with the notice that we have, I think even with that, we are going to reach better numbers than the last year. I mean we are not going to maintain the same level that the first semester, but we can even reach levels better than the last year. That is our expectation.

And in the case of cables, we expect to maintain the same level both -- all depends on the copper price because as you know, the copper prices are increasing our sales, but the volumes we expect to maintain for the rest of the year.

Operator

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

A
Alejandro Azar Wabi
analyst

Two quick ones, if I may. The first is on Grupo Sanborns. Do you have any strategies to bring back the profitability level, the EBITDA profitability levels back to double digit? And could you elaborate on those? That would be my first one. And the second one, if you could comment on the current status of the process around the Line 12 of the Mexico City subway.

A
Angélica Garnica
executive

Well, regarding Grupo Sanborns, this quarter, we saw the sales increase because of the comparison with last year having all Sears stores and Sanborns restaurants, just the pharmacy, the telecom, the technology, iShop/MixUp and that's open. It was a good comparative. However, if you also analyze it, May specifically of 2019 and regarding the 2019 numbers, we increased 0.6%, which is positive.

Now the mix of sales of products is what kept pressuring the margin because we sold a lot of white lines, TV screens, technology, computers and also -- well, technology in general and electronics, and that pressured the margins. What we need to do is to have more dynamism in fashion, in credit income and also in the restaurant sales.

So first of all, we will keep the improvements in logistics with the implementation of the Alibaba platform, which will be for this year -- for the end of the year for better inventory management in Sears and Sanborns, improving not only the physical management, both the e-commerce or let's say, the brick-and-mortar but the e-commerce.

Regarding fashion, we keep on with the strategy of our own brands. We are changing the promotions, for example, this May, we have with the Mother's Day, better promotions. We are trying to recuperate in credit. The customers that are not buying by credit. So we are also opening the credit a little bit more but keeping in consideration with the NPL. So it's the credit, opening it a little bit more for people that don't have used their credit, imposing them to use their credit card in Sears, imposing the fashion.

And the restaurants, I think they are getting better with the expansion of the operation hours. In e-commerce, the delivery -- improving the delivery and what else? And basically, that would be our efforts. I mean the expenses, keeping them controlled. If you see the increase being just controlled not -- with the fixed expenses, as I've said, the rents, the leasing, the delivery costs, the advertising. So keeping the expenses controlled and improving the mix of products for the following semester.

A
Alejandro Azar Wabi
analyst

And the other one related to the status around the subway?

A
Arturo GarcĂ­a
executive

Alejandro, this is Arturo Spinola. Regarding the subway, I suppose you are regarding 12 Line, what is our position. As you know, this is a critical or delicate situation, then I -- my apologies, but I am going to explain or express our position in Spanish in order to be clear. And if we are -- if we have English spoken in the conference, we can send the information in order that you can translate. I think you understand that.

About the investigation, we have 2 points about the investigation. [Foreign Language]

And regarding the rehabilitation, [Foreign Language]

That is that we can share with you in this moment. And as I said in the last paragraph as soon as we have more information, we are going to inform to the public.

Operator

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

A
Angélica Garnica
executive

Thank you, again, everyone, for connecting to this conference call. If you have -- need additional information, keep in touch with us. Have a good day.

Operator

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