Grupo Carso SAB de CV

BMV:GCARSOA1

Earnings Call Transcript 2018-Q4

[Operator]

Good morning, everyone, and welcome to the conference call to discuss the fourth quarter 2018 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, CEO of Grupo Carso; Mr. Arturo Spínola, CFO of Condumex and Carso Infraestructura y Construcción; and Ms. Angélica Piña of Investor Relations.

I would now like to turn the call over to Ms. Angélica 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 fourth quarter financial results and then we will take your questions. During the fourth quarter of the year, consolidated sales of Grupo Carso grew 2.6% totaling MXN 28.4 billion. Retail and industrial were the main drivers of these results, posting a 4.2% and 1.1% increase. Carso Infraestructura y Construcción decreased 10% and Carso Energy sales are not representative. Operating income fell 43.7%, affected mainly by 2 extraordinary items: other income in 2017 of MXN 1.2 billion from the dilution and sale of shares of the associated companies GMexico Transportes and other expenses in 2018 from an impairment in exploration investments in the oil fields in Colombia. Excluding these onetime charges, the EBITDA totaled MXN 3.8 billion, being 14.5% lower than last year. Consolidated net income reduced 22.9% due to ForEx valuation and lower participation in result of associated companies due to changes in IFRS.

By division, the quarterly sales of Grupo Sanborns reached MXN 16.7 billion. We had a shift in sales from the nice sale in October and then a better performance in November when our customers moved up from holiday shopping from December in response to a well [ fit ] promotions. All the retail formats increased its sales, with Sears and Promotora Musical posting a higher contribution, growing 4.6% and 7.3%; while Sanborns grew 1.1%; and other formats, 3.8%. A greater technology, electronics, and furniture share in the product mix affected the retail gross margin, which decreased 30 basis points to 37.4%. Operating expenses were higher since we inaugurated 2 new iShop stores and the reopening of the unit in Galerías Coapa shopping center. Therefore, operating income and EBITDA decreased 3.3% and 2.8%, respectively.

Grupo Condumex had higher volumes of telecom cables, power cables and turnkey projects, but the automotive division had the closing of the main platform of General Motors, which affected the volume of harnesses. Therefore, total sales increased 1.1%. Operating income and EBITDA decreased 24.7% and 27.9%, respectively, due to effects of the copper price as well as additional expenses from personnel turnover and extraordinary maintenance expenses. We also had to reinforce safety in logistics in the distribution channel.

On the Infrastructure and Construction division, CICSA posted MXN 4.2 billion in revenue, decreasing 10%. Civil Construction improved its sales. However, we recorded lower revenues in the pipeline installation sector since the construction of the Chihuahua gas pipeline has stopped due to right-of-way matters. Here, we expect the activity to recover in the next month. We also recorded lower revenues in Infrastructure and Construction due to the less tenders, the completion of diverse projects, which are the Atotonilco wastewater sewage plant, the Guadalajara highway and elevated roads and also the suspension of the New International Airport of Mexico City. The highway projects in Panama and Nicaragua on consortium with FCC were not consolidated and are not reflected in sales. Currently, the Emisor Oriente Tunnel, the Las Varas-Vallarta highway, various real estate projects and installation services for telecom are the main projects under construction. Due to the mentioned reasons, operating income and EBITDA decreased 55.9% and 45.6%, respectively. The backlog reached MXN 21.3 billion and added MXN 2.5 billion more when considering projects in which CICSA has a participation with other companies to reach MXN 23.8 billion.

Lastly, sales of Carso Energy totaled MXN 14 million instead of MXN 47 million a year ago. This was a consequence of a lower production and lower oil prices in the commercialization of oil with Tabasco Oil Company. The quarterly operating income was a loss of MXN 501 million but it includes the effect of an impairment of MXN 373 million in the exploration investment in the fields of Colombia. EBITDA totaled a loss of MXN 40 million compared to MXN 9 million in 2017. The Waha-Presidio and Waha-SanElizario gas pipeline, where we have a 51% participation, are already receiving sales from gas transportation from CFE, showing operating profit by MXN 119.3 million during 2018. And however, the results are not reflected in Carso's P&L. We expect the Samalayuca-Sásabe gas pipeline in Chihuahua to reactivate the construction in the following months.

With this, I finish my general comments to proceed to a Q&A session.

[Operator]

[Operator Instructions] Since there appears to be no questions, I would like to turn the call back over to Ms. Piña for any closing remarks.

[Angélica Garnica, executive]

Thank you again for your participation in this conference call. Please contact us if you have additional questions. Have a good day.

[Operator]

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