Grupo Carso SAB de CV

BMV:GCARSOA1

Earnings Call Transcript 2017-Q4

[Operator]

Good morning, everyone, and welcome to the conference call to discuss the fourth quarter 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. Antonio Gómez García, CEO of Grupo Carso; Mr. Arturo Spínola, CFO of Condumex and Carso Infraestructura y Construcción; and Ms. Angélica Piña of Investor Relations.

I will now turn the call over to Ms. Angélica Piña. Please go ahead

[Angélica Piña Garnica, executive]

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

During the last quarter of the year, consolidated sales of Grupo Carso increased 0.2%, totaling MXN 27.7 billion. This was due to the industrial and retail divisions posting increases of 4.2% and 2.2 -- 2.7% in revenue, respectively. The gross margin improved 14.2% due to lower cost of sales but higher expenses were recorded. Therefore, operating income in the quarter remained constant in MXN 4 billion. This was excluding an extraordinary item of MXN 1.2 billion from the sale of shares from the associated company, GMexico Transportes. Excluding one-time charges, the EBITDA totaled MXN 4.4 billion, being 1% higher than last year with an EBITDA margin of 15.1%.

Financial results reflected a lower comprehensive result on variations on the exchange rate and the benefit from tax reductions. Therefore, controlling net income considering extraordinary items increased 43.4%. Debt [ fell ] 12.7% compared to the figure recorded at the end of December 2016. Net debt was MXN 5.1 billion, very similar to the net debt at the end of 2016.

Existing cash decreased 19.6% due to the construction of the gas pipelines of Carso Energy and the payment of dividends, among other items. By division, Grupo Sanborns posted a 2.7% increase in total sales, reaching MXN 16 billion. This result show greater technology share driven by the launch of new models, compensating the impact of the closure of the stores affected by the earthquake in Mexico City as well as customers of socioeconomic levels C and D plus most affected by higher inflation.

Operating income on EBITDA decreased 8.3% and 5.1% due to higher expenses. However, net income increased 7.7% on tax benefits. The expansion plan included the opening of 9 stores and the renovation of 7 stores this year.

On the Industrial front, Grupo Condumex reported quarterly sales of MXN 7.7 billion, being 4.2% higher compared to last year. The sequential improvement in revenues included higher volume sales of fiber optics, copper and coaxial cable in the telecom division. Operating income on EBITDA increased 1.9% and 3.7%.

On the Infrastructure and Construction division. CICSA posted MXN 4.7 billion in revenue, decreasing 4.6% mainly due to the conclusion of various infrastructure projects. Operating income and EBITDA increased 23.4% and 17.7% year-over-year.

This improvement in profitability was derived from claims achieved in past projects whose cost was already recorded. Construction works for the Runway 3 and the terminal building of the new airport of Mexico City have already started. What's in both projects are in consortia, do not consolidate and are not reflected in the operational results despite their relevance. Our backlog at CICSA reached MXN 12.4 billion at the end of the quarter, an increase of MXN 14.1 billion more when considering projects in -- with CICSA has a participation with other companies.

Regarding Carso Energy. This quarter, the division started to recognize MXN 47 million in revenue related to the production and commercialization of [ foil ] in Columbia.

Waha-Presidio and Waha-San Elizario started receiving rents from gas transportation. However, they are not reflected in consolidated sales. The Samalayuca-Sásabe gas pipeline continues its construction to start operations in 2018. Regarding the recently won bids of Areas 12 and 13 for hydrocarbons, we are in the process of signing formalization requirement before starting exploration activities.

Lastly, we made a capital contribution in a company that has the permits of exploration of 2 geothermal energy fields in the state of Baja California and Guanajuato, and we're considering additional studies until the end of 2018.

With this, I finish my general comments to proceed to the Q&A session. Thank you.

[Operator]

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

[Miguel Ulloa Suárez, analyst]

The first one would be regarding the outlook for each business heading 2018. Could you give us a sense and color of what is it you're expecting? And how should we think about it?

[Arturo Spínola García, executive]

Okay. Miguel, this is Arturo Spínola. As we were commented in the last -- in the past times, we are now focused in different new projects. In the case of energy, as Angélica commented, presently, we are beginning with the exploration process in the -- to the 2 contractual areas regarding local woods and in the -- in 2 counts of geothermal energy in Baja California and Celaya. And when we are finishing the third pipeline -- gas pipeline in Sonora and Chihuahua state in Mexico, maybe we're going to finish it in the -- at the last of this year. With that, the Carso Energy is going to be an important division in Carso that now a -- has only 1% of the sale. But maybe in 18 or 24 months, we are going to begin to [indiscernible] oil and energy. So regarding the CICSA. As you know in Mexico, almost -- we are not having new bid. But our decision is going to South America. Now we are working in association with the FCC in Panama, in Nicaragua and waiting for other projects in Colombia, Peru and other countries. With that, CICSA is going to maintain the backlog even when we are not going to consolidate due to the [ higher tariffs ]. Regarding Condumex. We are consolidating the automotive business. And this year, we are going to start with a new platform, [indiscernible]. And we expect to maintain the margins as well as the cable business. As Angélica commented, the telecommunication cable [ fields are going ]. And we have maintained in -- our leadership in the construction cable. And regarding Sanborns, I need to ask Angélica to complement our comment.

[Angélica Piña Garnica, executive]

Well, about the retail division. This is an electoral year. So we are expecting money to flow into the economy but not necessarily to big ticket item. We think -- to the basic consumption like food, let's say, but we start selling more [ wide lines ]. And then at the end of the year, we expect to maintain the better same-store sales. We are estimating a growing same-store sales of 3 months and past, 3%, 4% in all our formats. And we will keep the promotions, the focus in profitability per square meter, our own brand. I mean, the strategy is the same. I think the only thing that will change is that we are combining it to be a omnichannel and also supporting our online workout that we have cr.com, sanborns.com, [indiscernible] and also Claro Shop. So we are combining this strategy with online, improving the delivery, the ways of payments. You know you can pay -- we charge to your Telmex phone bill in Claro Shop. So those will be the strategy for 2018. And also we are opening stores in a less dynamic space than in the expansion plan. Let's say, instead of 5 to 6 stores per year, they will be 3 to 4 stores per format per year. And also finishing the renovation that due to the earthquake, we have to delay such as [ Cuernavaca Averanda ]. But we are opening again, 3 to 4 stores per format in 2018.

[Miguel Ulloa Suárez, analyst]

That's helpful. And a follow-up, if I may. Regarding CapEx, dividend and the financing for 2018. Could you guys have [indiscernible] of the amounts of which -- for each of these items?

[Arturo Spínola García, executive]

Sorry, we can't -- if you can repeat, please. Because the line was not clear.

[Miguel Ulloa Suárez, analyst]

I was [indiscernible]. It's regarding CapEx, dividends and the financing for 2018. Could you [indiscernible] us of the amounts that you will devote for each of these items?

[Antonio Gómez García, executive]

Yes. Regarding CapEx, we expect around MXN 9 billion for 2018. The most important is for Carso Energy, around MXN 6 billion because of the finishing of the gas pipeline in Samalayuca and the exploration expenses in the -- in locals of Carso and the geothermal energy. Regarding Grupo Sanborns, we are talking about MXN 2.3 billion. As Angélica commented for new stores and renovating. And in the case of Grupo Condumex and [indiscernible] MXN 1 billion just for maintenance and to get the -- our facilities in good shape. That are the main CapEx for this year. Regarding financing. Right now, we are in a roadshow for [ Asegure ] by MXN 3,000 million. With that, we are restructuring our debt. And many people, we are in need to finance part of the Carso Energy project. Now we are analyzing the different options both in -- part of that, we are going to finance with [ Asegure ]. What's the -- what was the other question? The financing, the CapEx and -- that's it?

[Miguel Ulloa Suárez, analyst]

Dividends?

[Arturo Spínola García, executive]

Ah, dividends. Well, our idea is to maintain a level similar than the 2017 year as well in Sanborns and then in Carso. But we are not a -- we have no final decision now. But maybe it's going to be similar than the -- last year's.

[Operator]

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

[Angélica Piña Garnica, executive]

Okay. Thank you, everyone, for connecting to this conference call. If you need additional information, you can reach us by email or by phone. Thank you. Bye.

[Operator]

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