Grupo Carso SAB de CV

BMV:GCARSOA1

Earnings Call Transcript 2019-Q3

[Operator]

Good morning, everyone, and welcome to the conference call to discuss the third 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 this conference today, we have Mr. Arturo Spínola, 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]

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 third quarter financial results, and then we will take your questions.

Consolidated sales of Grupo Carso grew 10.4%, totaling MXN 25.8 billion. Carso Infraestructura was the main driver of revenues, posting a 36.3% increase due to more pipeline installations for telecom and gas in Mexico and LatAm, higher drilling works on geothermal and oil wells, and the recovery of costs recognized in previous periods related to the structures of the new international airport of Mexico, NAIM.

Grupo Condumex and Grupo Sanborns increased 10.4% and 1.5% in sales, respectively, and Carso Energy remain active with investments in pipeline, geothermal and oil projects.

Consolidated operating income and EBITDA went up 26.2% and 22.1%, respectively. The profitability of Carso Infraestructura and Grupo Condumex with a better product mix on cables explain this improvement.

Controlling net income expanded 26.8%, with a better operating leverage that offset the higher financial cost driven by exchange rate fluctuations during the quarter. By division, the total sales of Grupo Sanborns were MXN 12 billion, growing 1.5%. Promotora Musical improved 4.9% in same-store sales while Sears and Sanborns posted negative 3.5% and 1.2%, respectively.

The gross margin remained stable but operating expenses increased 3.8% with higher energy rates and salaries, higher operating expenses and recruitment from new stores and implementation of the new IT logistics platform.

Operating income and EBITDA decreased 7.5% and 4.6%, respectively.

Grupo Condumex reported sales of MXN 8.6 billion, increasing 10.4%. This included higher volumes in the telecom sector in copper cable, fiber optic and coaxial cables, with most dynamism in the local and export markets. Automotive harnesses and energy cables also increased its volumes.

Operating income and EBITDA increased 15.9% and 19.7%. Higher profitability in Condumex came from a better product mix within cable, valuations in metal prices and reductions in operating and administrative expenses mainly in the distribution chain.

On the Infrastructure and Construction division, CICSA posted MXN 5.4 billion in revenues, increasing 36.3%. This can be explained by the following reasons: Pipeline installations improved its sales with an increase in telecom in Mexico and LatAm and gas projects. The construction of highway projects in Mexico and Panama were recorded in the infrastructure division. And there was also more directional drilling of geothermal wells and cementing of oil wells in the manufacturing and services for the oil and chemical industry division.

Operating income and EBITDA in CICSA rose 145.3% and [ 114% ], respectively. This was due to the volume of projects, coupled with the recovery of costs incurred and recognized in previous periods related to the steel structures for the NAIM. It is important to remember that this quarter, we informed of a final settlement achieved between the Grupo Portuario and Constructora Terminal del Valle in Mexico; company for CICSA participated with a 14.2% to recover costs incurred in construction work, engineering and its modifications and the materials acquired during this project.

The backlog reached MXN 17.7 billion compared to MXN 13.2 billion a year ago. The mix of projects currently in place are the conclusion of works in the Emisor Oriente tunnel, the Las Varas-Vallarta and Mitla-Tehuantepec highway, the beach corridors in Panama, diverse real estate projects, telecom installation services, the construction of the Samalayuca-Sasabe gas pipeline as well as diverse services and equipment for the well drilling industry.

Lastly, sales of Carso Energy totaled MXN 11 million. The quarterly operating and EBITDA results were losses of MXN 4 million and MXN 2 million due to less production and commercialization of oil in Colombia.

Regarding the Samalayuca-Sasabe gas pipeline in Chihuahua, its construction continues. Having a great Carso Gasoducto Norte and the CFE this quarter to withdraw any legal action after the rate was leveled to achieve mutual benefits and better cash flow situation in the short term. The Waha-Presidio and Waha-San Elizario gas pipeline, 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] There are no questions at this time. I will turn the call back over to Ms. Piña for any closing remarks.

[Angélica Garnica, executive]

Thank you for your participation in this conference call. If -- we are available, if you can reach us by mail or by phone. Have a good weekend.

[Operator]

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