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
2022-Q3

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Operator

Good morning, everyone, and welcome to the conference call to discuss the results of the third quarter 2022 of Grupo Carso. Before I begin, I'd like to remind you this call is being recorded and that the information discussed today may include forward-looking statements regarding the company's financial operations performance.

All projections are subject to risks and uncertainties. Actual results may differ materially. Hosting the conference today. We have Mr. Arturo Spinola, CFO of Condumex and Carso Infrarecture and construction. This is Loris Braha, CFO of Elementia and Ms. Angelica Pina of Investor Relations. I'll now turn the call over to Ms. Angelica Pina. Please go ahead.

A
Angélica Garnica
executive

Thank you very much. Good morning, everyone, and thank you for your interest and your participation in this conference call. I will take you briefly for the third quarter financial results, and then we will take your questions. In this quarter, the consolidated figures of Grupo Carso SAB have been prepared, including an additional sector, which is Elementia Materiales, and Fortaleza Materiales acquired through the shareholders agreement in the respective tender offers of March 22, 2022, where Grupo Carso now owns more than 50%. The third quarter of 2022 figures were not misstated. The retransmission of the financial information of the second quarter of 2022 was due to the modification of the criteria to integrate the results of Elementia Materiales and Fortaleza Materiales without affecting the statement of financial position and the results of the different business segments.

Elementia's financial information began to be consolidated as of May 2022 in Grupo Carso. Consolidated sales of Grupo Carso improved 54.7%, totaling MXN 46.6 billion. This was mainly due to Carso Grupo construction, which posted a 48.5% increase, adding MXN 3.1 billion more due to the progress in infrastructure projects and higher oil drilling. Grupo Sanborns went up 21%, with sales improvement as the department stores and restaurants compared to last year. Condumex grew 6.6% related to higher cable harnesses and cable volumes. Carso Energy increased 2.6%, mainly from recording additional revenues from the 2 hydroelectric plants in Panama. Elementia in this quarter contributed with 21% of consolidated sales coming from higher prices and demands in cosumer materials, mainly in the U.S.

Excluding Elementia sales increased 22.4%, totaling MXN 36.9 billion. Consolidated operating income increased from MXN 3.1 billion to MXN 5.3 billion while EBITDA went up 62.6%, with lower administrative and selling expenses, reducing 190 basis points as a percentage of sales from 14.4% to 12.5%.

The main increases in profitability came from Grupo Sanborns, Carteretotura and Grupo Condumex. All of them with a better product mix. EBITDA totaled EUR 6.6 billion, higher than EUR 4 billion, a year ago. Excluding Elementia, the operating income and EBITDA increased 37.1% and 28.7%, respectively. The consolidated controlling net income increased 33.4%, reflecting mainly the improvement in operating results. Explaining the performance by division, the total sales of Grupo Sanborns were MXN 14.3 billion, increasing 21%. Grupo Sanborns' different formats have shown a sound improvement after the effects of COVID-19.

The back-to-school and independent loan weekend contributed favorably to this recovery. SAB grew 19.4% in total sales, Sanborns 26.9%, an comp of 20%. The retail gross profit increased 22.4% and operating expenses reduced from 30.9% to 28% of sales. Therefore, operating income totaled MXN 976 million compared to MXN 387 million last year. EBITDA improved 62.7% and net income reached MXN 825 million compared to MXN 319 million in the third quarter of the previous year.

In this division, Grupo Carso SAB made public its intention to initiate the processes to launch a voluntary tender offer for all of the outstanding shares of Grupo Sanborns, SAB owned by the investor public at a price of MXN 26 per share payable in cash, in Mexican peso.

Regarding the Industrial division, Grupo Condumex posted a 6.6% improvement totaling MXN 11.8 billion. This increase came from the automotive sector with higher cable volumes and copper prices despite planned shutdowns with major customers.

The operating income and EBITDA of the Industrial division went up 15.1% and 12.4%, respectively. Controlling net income improved 27.8% going from MXN 1.1 billion to MXN 1.4 billion this year. Carso infrastruction and Construction contributed with additional MXN 3.1 billion in revenues, increasing 48.5% and reaching MXN 9.6 billion. The divisions that had the best performance were infrastructure with MXN 1.9 billion more due to the progress in the construction of the second section of the Mayan train and 2 highways.

Manufacturing and services for the oil and chemical industry for land drilling increased 122.2% from fluids, directional drilling and referral oil wells. And pipeline installations, which grew 22.1% due to telecom projects. The operating income and EBITDA in countries [indiscernible] construction increased 44.7% and 38.9%, respectively.

Controlling net income increased 28% from the sound operating results. The projects currently in place are the Las Velas-Vallarta and Mila Teaneck Highway, Telecom Installation Services, equipment for the petrochemical industry, drilling of deep wells for Pemex, various services and equipment for the oil industry and the cartera [indiscernible] Section 2 of the mayan trade. The backlog of totaled MXN 41 billion compared to MXN 34.1 billion a year ago, mainly including additional drilling services for Pemex. The sales of Elementia increased 13.8% from MXN 8.5 million in the third quarter of 2022 to MXN 9.7 billion in the third quarter of 2022. This increase was driven by price provisions in all business units as well as the increase in volumes sold in Construsistemas and metals, mainly in the U.S. Elementia's operating income decreased 46.9% due to a negative effect in depreciation.

On the other hand, EBITDA decreased 12.5% from MXN 1.6 billion to MXN 1.4 billion, mainly due to increases in electric and thermal energy costs, particularly in U.S. segment.

Controlling net income in Elementia fell 40.9% to MXN 543 million compared to MXN 919 million in the previous year. The sales of Carso Energy totaled MXN 1 million, where additional revenues came from the 2 hydroelectric plants in Panama where more rain and higher spot prices of energy were recorded, coupled with revenue from the Samalayuca Saade pipeline.

The Gaza Presidio and [indiscernible] gas pipelines in Texas U.S.A., where we have a 51% participation, received rents from gas transportation. However, the revenues are not reflected in consolidated sales. The operating income and EBITDA of Group Carso Energy went up 7.9% and 7.2%, respectively. Lastly, the Gas Pipeline business, we have initiated an investment in a compression station for the Samalayuca-Sásabe pipeline, which will significantly increase the capacity. With this, I finish my general comments to proceed to the Q&A session. Thank you.

Operator

[Operator Instructions]

Our first question comes from Laisha Zaack of GBM.

L
Laisha Zaack Carrillo
analyst

I have a couple of them, and I was wondering just the first 1 would be you mentioned something about the investment in the Samalayuca-Sásabe. Can you talk more about that? Can you give us more color on when would this happen? And the increase or like the additional sales that this would mean for the company? That will be my first one. And then the second one would be like when could we expect to sampling tender offers to conclude.

A
Arturo GarcĂ­a
executive

Regarding the compression station for the Samalayuca-Sásabe pipeline. We are now in around 35% advanced regarding the construction, but maybe it's going to be ready for the next year -- for the end of the next year because of the equipment that takes a while to purchased, but take time to take it in Mexico. I think we are going to be ready to use the compression station for the end of the next year. And regarding the tender offer of [indiscernible] samples, we have almost everything ready and maybe at the end of November, we are finishing the process. And maybe the second week of November is going to begin the 20 days that we have to put the shares. And at the end of November, maybe the process will end.

L
Laisha Zaack Carrillo
analyst

Okay. And can you talk about the incremental sales of the compressors.

A
Arturo GarcĂ­a
executive

The compression expansion has a potential to increase amount 40% and 50% of the capacity of the pipeline. Then we can increase $3 million or $4 million per month when we get enough market, that is the maximum increase that we maybe are going to reach with the compression expansion, all depends on the market, but the capacity is going to increase around 40%, 50% more or less.

Operator

Next question comes from [indiscernible] of BBW.

U
Unknown Analyst

Congrats on the results. I would like to ask you for some color heading 2023. How do you foresee the situation for each of the subsidiaries of Grupo Carso.

A
Arturo GarcĂ­a
executive

We have different expectations, maybe beginning with Grupo Sanborn. As you know, Sanborn is getting the sales level pre pandemic. And now we are working to increase the margin through the e-commerce and another strategy. then we expect to increase the same above the pre-pandemic period and have a better margin, maybe 1 or 2 points from now.

In the case of the industrial sector in Grupo Condumex, we are expecting -- we have good expectations because in this year, in spite of the problem in the automotive industry, we have a good level of sales. And our expectation is that the component [indiscernible] is going to end that is good for us as in the cable sector in the [indiscernible] division. Then we expect to maintain the good level of sales of this year and mainly in the automotive sector, 10% and 16% more than this year that is our expectations and maintaining the present margin.

Talking about Carso infrastructure and construction, the leader is going to be maybe in the same level as this year. As you know, this year is going to be a historical record for the company Grupo construction because of the [indiscernible] and other projects, and we are making some effort in order to maintain these levels.

I mean we are now increasing our civil construction project viable to construct some hospitals in different places of Mexico. We continue with a [hospital] and two highway that we are going to finish in the next year. And we have new businesses with Pemex regarding the pipelines and the rigs. Then our expectation is not going to be is to maintain the same level of this year that as I commented, this yield for [indiscernible] construction was a historical record. Regarding Carso Energy, we expect -- our expectation for the next year is to get the permission of the authorities regarding geothermical energy because as you know, we have -- we have done that project for [indiscernible], but we have now to get the concession from the core, and we need that in order to continue with the investment. In the rest of the businesses, I mean the hydroelectrical plants and the pipeline all continuing the same level as it this year because, as you know, we have a long-term contract.

I talk to the sample Condumex. And finally, Elementia, with the change of administration in the Elementia, we are trying to make synergies with other business of our group and [indiscernible] since the administration in which we are integrating from operations without [keeping] Grupo Carso that in order to decrease the cost of Elementia -- Elementia Group and our expectation to increase our margins because we got some good sales increase, but now our challenge is to increase the margin, and we are going to work in order to increase the margin in all of the sectors. I think metals [indiscernible] systems and cement. This is just a brief -- a very brief outlook of our 5 sectors, but I -- we think we can maintain the good levels of this year and maybe in some businesses increase the results.

U
Unknown Analyst

That's very helpful. And just a quick one regarding [indiscernible] backlog. Could you give us some indication of the average years for this backlog.

A
Arturo GarcĂ­a
executive

Maybe the average is around [ MXN 40 billion]. Now we are maintaining for the next year because of 1 platform that we want to presumably and the hospitals that we are going to construct, as I commented. But now we are -- we have the expectation to do the bids from the government that you know we have the team a lot, but now our backlog is around MXN 41 billion, and we are trying to maintain for the next year but all depends on some government strategies and by now, we are maintaining in this level for the year because of new businesses that we are reaching.

Operator

Thank you. There are no further questions. At this time, I'd like to turn the call to the management 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. Thank you. Have a good day.

Operator

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