Grupo Carso SAB de CV
BMV:GCARSOA1

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Grupo Carso SAB de CV
BMV:GCARSOA1
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Price: 116.38 MXN -0.83% Market Closed
Market Cap: 262.5B MXN
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Earnings Call Transcript

Earnings Call Transcript
2020-Q3

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Operator

Good morning, everyone, and welcome to the conference call to discuss the results of the third quarter 2020 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 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. 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's financial results, and then we will take your questions.

Consolidated sales of Grupo Carso decreased 4%, totaling MXN 24.7 billion. Carso Infraestructura y ConstrucciĂłn posted a 19.5% increase due to higher revenues from the construction of oil platforms and marine infrastructure units for Pemex, pipeline installations for telecom and the conclusion of the gas pipeline in Northern Mexico.

Grupo Condumex increased 9.2 percentage sales from recovering volume in automotive harnesses and automotive cable after the pandemic, combined with higher sales prices related to the forex rate. Carso Energy also increased, recording additional MXN 257 million in revenues from the incorporation of the 2 hydroelectric plants in Panama. However, due to COVID-19 health restrictions that affected consumption in stores and restaurants, Grupo Sanborns decreased its sales 23%.

Consolidated operating income went up 6.9% since an extraordinary item of MXN 1.1 billion was recorded, corresponding to the reassessment of the benefits of the employee plan in the Retail division. The profitability of the normal operations of Grupo Condumex posted a 29.2% growth, and Carso Energy's income improved from negative MXN 4 million to positive MXN 64 million. Excluding the extraordinary item mentioned, EBITDA went down 22.6%.

The consolidated controlling net income totaled MXN 2.4 billion, explained by the higher operation results mentioned previously as well as better results recorded in associated companies. In the breakdown by division, the total sales of Grupo Sanborns were MXN 9.2 billion, decreasing 23%. Sears, Sanborns and other formats decreased 33.3%, 30.3% and 29.8%, respectively, while iShop/MixUp increased 13.6%. These results reflected a sequential recovery on sales after the gradual opening of the 100% of the brick-and-mortar stores in mid-August, operating on the protocols established by the health authority.

Customer service continued through digital channels, where online sales in the quarter grew 4x. The Retail gross margin decreased from lower credit revenues as well as higher demand from big ticket technology and electronic items influenced by the back-to-school season with remote classes. Expenses were controlled, comprising less expansion, corporate, energy, rent and other overheads. The operating income increased 20.1%, reaching MXN 1 billion, since an extraordinary item of MXN 1.2 billion was recorded from the reassessment of the employee pension plan. Without considering other income, quarterly EBITDA of the Retail division decreased 73.5%.

Regarding the Industrial division, Grupo Condumex recovered sales, posting a 9.2% improvement. This was due to higher volumes in the automotive manufacturing plants after the pandemic, combined with higher prices of the average exchange rate, copper prices and higher metal sales. This performance partially offset the suspension of the construction sector, with less construction cables and turnkey projects, and a reduction in telecom, where volumes of copper, fiber optic and coaxial cable decreased.

The operating income and EBITDA of the Industrial division went up 29.2% and 27.4%, respectively. Controlling net income increased from MXN 718 million to MXN 1 billion, mainly driven by the better activity mentioned in the automotive sector.

Carso Infraestructura y ConstrucciĂłn posted MXN 6.6 billion in revenues, increasing 19.5% due to the following reasons: the progress in the construction of the Maloob-E and Maloob-I oil platforms; and the beginning of work for the construction of 3 marine infrastructure units in the manufacturing and services for the oil and chemical industry division; more telecom projects in Mexico; and the completion of the construction of gas pipeline projects in Chihuahua; the construction of stage 2 of the Mitla-Tehuantepec highway; and the beginning of works for the Mayan train section 2 in the Infrastructure division.

Even though there were higher sales due to lower profitability at the Civil Construction and Pipeline Installation sectors, but mainly to the recovery of costs related to the -- to funding construction contracts for the NAIM recorded a year ago, the operating income and EBITDA in Carso Infraestructura fell 33.6% and 27.8%, respectively. The backlog reached MXN 25.9 billion compared to MXN 19 billion a year ago. The projects currently in place are the Las Varas-Vallarta and Mitla-Tehuantepec highways, the beach corridors in Panama, diverse real estate projects, telecom installation services, the oil and marine platforms, diverse service 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 268 million, where additional revenues came from the 2 hydroelectric plants in Panama. The quarterly operating income and EBITDA improved from losses of MXN 4 million and MXN 2 million in 2019, to gains of MXN 64 million and MXN 168 million, respectively.

The construction of the Samalayuca-Sásabe gas pipeline finished in this third quarter, and we estimate to receive rents in December or in January 2021. 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] And our first question today will come from Vidal Lavin with BlackRock.

V
Vidal Lavin;BlackRock;Analyst
analyst

Could you please comment a little bit more about the reasons of the other income? If it was just a onetime event, or what will we expect on that in the future?

My second question refers to the e-commerce sales. You said that they increased 4x. Could you please tell us how much do they represent of total sales?

And finally, if you can comment a little bit on the infrastructure projects. What would we expect in the future with a new project that the government announced, if you are planning to participate there?

A
Arturo GarcĂ­a
executive

With regards to the pension plan, yes, that is a onetime adjustment. And that is because of the changes that we made in the pension plan for the Grupo Sanborns employees. Then we are -- just recognize that in this period and not in the future. In the future, it is going to have the normal cost for that kind of situation. And now, the second question...

A
Angélica Garnica
executive

The second question is e-commerce. Well, e-commerce, these are -- in the pandemic period, grew in Sears and in Sanborns, 500%, 400%. Now it's kind of stabilizing in -- as we are seeing the gradual opening of the brick-and-mortar stores.

Right now, it represents 20% of the retail sales. However, this will tend to be 8% -- 7% to 8% when we are coming from 3%. So they are already stabilizing, but still a good percentage in this quarter, as we said 4x. In both Sears, Sanborns, we also have Claro Shop as a marketplace. We are also really taking more suppliers, more channels of distribution with third parties and with our own fleet and more items and also some negotiations. For example, if you have a specific system of recording, accounting with some suppliers, you automatically can sell your products or your merchandise in Claro Shop. So we are making those kind of initiatives to still keep a good trend in the sales of e-commerce.

And can you repeat though the third question, please?

V
Vidal Lavin;BlackRock;Analyst
analyst

Yes. It's related to the Infrastructure division, mainly regarding the new projects that the government announced, if you are also planning to participate there?

A
Arturo GarcĂ­a
executive

Yes, Vidal. We're planning to participate in the -- as you know, most of the projects that the government announced recently are highways, and highways are -- is part of our portfolio. We don't have a problem to participate, but inclusive in there, the Escárcega train. The rest of the project, we are going to analyze. And at least in the highway projects, we want to participate, and we see good possibilities. But if we need to join with others in order to accomplish the requirements to participate in another kind of project that we have no experience, we are going to do, for example, with FCC, the Spain construction company that we have a participation agreement.

And then we are just waiting for the lease, waiting for the bid, and we are ready to participate. And we expect to join to get something.

Operator

[Operator Instructions] And at this time, I'm seeing no further questions. Ms. Piña, would you like to proceed with closing remarks?

Apologies. We've just received a question, and that will come from Luis Garcia with GBM.

L
Luis Garcia Argote;GBM;Analyst
analyst

I have 2 questions. The first one is if you have any plans to pay a dividend this year. And the second question is if you could give us more color about the dynamics of the automotive and telecom business in Condumex.

A
Arturo GarcĂ­a
executive

Yes, with regards to the dividend, we suspended the dividends for this year in order to support the situation in Grupo Sanborns and the other companies. I hope for the next years, we are going to have dividends for -- but in this year, we have no dividends planning to do.

On the other hand, with regard to the automotive sector, we are very confident with the future of these companies because we have received new platforms, new contracts in order to continue the growth of this sector.

And fortunately, the kind of vehicles that we provide, I mean, SUVs, pickups, et cetera, that market is maintaining and, in different cases, growing in the U.S., that is our main market.

We hope to recover the sales loss in the pandemic time. And we expect to end the year with sales similar in the previous year, and we are planning a growth for the next year, in 5% or 10% each. Then we have a good expectation in that sector, and the markets are receiving the -- this time better than we expected. I mean the American market, the U.S.A. market here, it is demanding very well our products.

Operator

And our next question will come from Alejandro Azar with GBM.

A
Alejandro Azar Wabi
analyst

I'm sorry. I just entered the conference. Did you mention when did you start commissioning of the Samalayuca-Sásabe pipeline in Carso Energy? That's my only question.

A
Arturo GarcĂ­a
executive

Yes. Good morning. The pipeline was finished in this quarter. We are now in tests and waiting for certain permission from the CRE. But we are -- I mean the commission in the beginning, and we hope to begin the invoice to the CFE on December or January 2021.

But we are just beginning with our new projects. I mean we are confident, at least maybe the more sure thing, in January 2021, the beginning of the operation. Now we are in the commissioning period. The pipeline has finished totally.

Operator

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

A
Angélica Garnica
executive

Once again, many thanks for participating in this conference call. We look forward to speaking with you again. Have a nice weekend.

Operator

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines at this time.