Grupo Carso SAB de CV

BMV:GCARSOA1

Earnings Call Transcript 2020-Q4

[Operator]

Good morning, everyone, and welcome to the conference call to discuss the results of the fourth 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 this 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.

[Angélica 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.

Consolidated sales of Grupo Carso improved 5.1%, totaling MXN 31.1 billion. Grupo Condumex posted a 34.8% increase due to higher volume in automotive harnesses and cables, combined with higher sales prices related to the ForEx rate.

Carso Infraestructura y Construcción increased its revenues 21.7% from the construction of oil platforms and marine infrastructure units for Pemex, pipeline installations for telecom and the completion of the gas pipeline in Northern Mexico.

Carso Energy also increased, recording additional MXN 225 million in revenue from the incorporation of the 2 hydroelectric plants in Panama. However, Grupo Sanborns decreased its sales 15.7% as stores and restaurants were closed again in mid-December due to the COVID-19 health restrictions.

Consolidated operating income went down 4.3% since the profitability of Grupo Sanborns was affected by the store closures, and Carso Energy's income was negative. Carso Infraestructura y Construcción improved 354% and Grupo Condumex posted a 56.3% growth in profitability. On the other hand, the EBITDA of Grupo Carso increased 1.4%.

The consolidated controlling net income totaled MXN 989 million, falling 45.9%, reflecting the operating results mentioned previously as well as higher financial costs due to the foreign exchange variation.

In the breakdown by division, the total sales of Grupo Sanborns were MXN 14.9 billion, decreasing 15.7%. Sears, Sanborns, iShop/MixUp and other formats decreased 19.7%, 24.5% and 2.4% its total sales, respectively. These results reflected a decline in customer traffic from the new lockdown measures introduced in mid-December in Mexico City.

Customer service continued through digital channels, where online sales in the quarter grew 3.3x. The retail gross margin decreased from higher demand of big-ticket technology and electronic items influenced by the [indiscernible] promotional system. Expenses were controlled, comprising less rent, energy consumption, bank commissions, expenses and fees as well as advertising and depreciation expenses. The operating income decreased 41.2%, totaling MXN 1.1 billion, while the EBITDA reduced 46.9%.

Regarding the Industrial division, Grupo Condumex posted a 34.8% sound improvement. This was due to higher volumes in the automotive manufacturing plants, combined with higher prices of the average exchange rate and copper, and comparing favorably since the General Motors U.S. strike was in the fourth quarter of last year.

The construction division showed less dynamism in the domestic and export markets, while telecom has better volumes of copper, fiber optic and coaxial cables. The operating income and EBITDA of the Industrial division went up 56.3% and 56.1%, respectively. Controlling net income increased from a loss of MXN 164 million to a net income of MXN 509, mainly driven by the better activity mentioned in the automotive sector.

Carso Infraestructura y Construcción posted MXN 6.5 billion in revenues, increasing 21.7% due mainly to the manufacturing and services for the oil and chemical industry division. With more land drilling contracts for repairing old wells, the progress in the construction of the Maloob-E and Maloob-I oil platform and our 3 marine infrastructure units, and the infrastructure division, the progress in the construction of the Mitla-Tehuantepec highway and the beginning of works for the Maya train Section 2 in the infrastructure division.

The pipeline Installations division decreased 13.8% due to reduction of works in the gas pipeline and civil construction and housing division projects were affected by the sanitary contingency, supported by the higher sales mentioned before and recovery costs related to the reconciliation of the Emisor Oriente Tunnel, the operating income and EBITDA in Carso Infraestructura y Construcción increased 364% and 183.1%, respectively.

The backlog reached MXN 48.3 billion compared to MXN 21 billion a year ago. The projects currently in place are Las Varas-Vallarta and Mitla-Tehuantepec highway, telecom installation services, the oil and marine platforms, diverse services 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 236 million where additional revenues came from the 2 hydroelectric plants in Panama. The quarterly operating result was a loss of MXN 258 million, while the EBITDA improved, reaching MXN 210 million. The construction of the Samalayuca-Sásabe gas pipeline finished in the third quarter of 2020, and operations are estimated to begin in this month of February.

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] Our first question is from Vidal Lavin with BlackRock.

[Vidal Lavin, analyst]

Yes. I would like to know if you can give us a little bit of guidance of what we can expect this year regarding CapEx as well as if you are going to pay dividends this year?

[Arturo García, executive]

This is Arturo Spinola. Regarding CapEx, we are projecting around $80 million, in this case, mainly for the Industrial division because of certain high maintenance in some plants and because we are projecting some increases in the cable -- automotive cable division and the metals division. I mean we are going to change the aluminum furnace and modernize the one of the copper. Then from $80 million, maybe $60 million are from Condumex and the rest is Energy, mainly.

It is possible that the case of Carso Energy increases its CapEx, but all depends on certain authorization from the authorities, I mean CMH and the Senate. In that case, we can increase around $50 million or $60 million more. That is the case of the CapEx.

And regarding dividends, now we are reviewing that. We have no decision yet. In the case of Sanborns, we think there is no dividend this year. Maybe in the case of Grupo Carso, we are going to plan some dividend, but we are not -- we have not, as we mentioned, yet. That is the situation.

[Vidal Lavin, analyst]

Okay. And can you give us a little bit comments on some respect of the different divisions this year, what you expect, particularly, in the commercial division in Sanborns and as well in Energy? If you can tell us more or less, what is your target on sales and EBITDA for this year?

[Angélica Garnica, executive]

Vidal, well, in the Retail division, the CapEx should be around MXN 500 million. This would be only logistics and distribution. We have the Alibaba system being installed, first in Sears and then in Sanborns. Obviously, we have delays because of the supplier being located in China. We have other maintenance of stores to keep them in the right levels of service. And we are not planning of opening new stores for the moment.

So let's say, like for the logistics, it would be like MXN 122 million. And maybe an expansion of the [indiscernible] store of Sears, and that would give us the most important part of the CapEx. Now regarding the guidance, we are...

[Vidal Lavin, analyst]

The discussion was more related sales and EBITDA -- yes.

[Angélica Garnica, executive]

The sale would be -- we are estimating to take the base MXN 219 million, a 5% growth in sales in Sears and Sanborns. We don't expect growth in Sanborns Cafe or in the restaurants, that would be of the stores. And that's, again, like a 5% to 10% increase in revenues and a 5% increase in iShop, for example. And Claro Shop, more than 50% increase.

[Vidal Lavin, analyst]

Okay. And regarding the...

[Arturo García, executive]

Regarding the...

[Vidal Lavin, analyst]

Expect -- coming in sales and EBITDA this year?

[Arturo García, executive]

Yes. Since we are now -- beginning with the Gasoducto, Samalayuca-Sásabe, we are expecting around MXN 2,500 million revenue from Carso Energy in this year, and the EBITDA around MXN 2,000 million. That is our estimation for '21. That is the situation of Carso Energy.

In this year, we are recording the 2 hydroelectric plants and the Samalayuca-Sásabe pipeline. And as you know, the 2 plants that we have in Texas, we are not recognizing the revenue. But we are beginning in this month with the record of the revenues of -- from Samalayuca-Sásabe pipeline. That is the situation of Carso Energy.

And regarding the guidance of the Industrial division, we are expecting to maintain the level of this year, I mean, around MXN 32,000 million, MXN 33,000 million. But maybe it could be a little higher, all depends on the U.S.A economy. Unfortunately, we depend on the U.S.A. more than the Mexico economy. But from now, we are expecting a same level. As you know that the level of this year was very good for us, and we are thinking that we can maintain this level. EBITDA is around 16%, more or less, in the Industrial division.

And in the case of Carso Infraestructura y Construcción, we are going to have around to MXN 23,000 million in revenue, a little lower than the 2020 because of [indiscernible] but we are maintaining the rest of the business. And we have good expectations in the case of the services for the oil and chemical industry because we are looking for some business regarding the copper refinery and other related to heat energy. If we obtain that, maybe we can increase the sales of Carso Infraestructura regarding this year.

So that is our idea of the Industrial, energy and construction division. I don't know if you have another question.

[Operator]

The next question is from Miguel Ulloa with BBVA.

[Miguel Ulloa Suárez, analyst]

This one would be regarding the gas pipelines that are not consolidated. How much income -- revenues do you expect for this year? And how much EBITDA contribution from the pipelines that are not consolidated?

[Arturo García, executive]

Miguel, do you need the results of the Waha pipeline?

[Miguel Ulloa Suárez, analyst]

Yes, sir.

[Arturo García, executive]

As you know, we just consider the participation of the net profit of the Waha, but the -- both pipelines are -- is running very good, not at the high capacity, but that is our situation of the CFE. That does not have a negative impact for us. But we are obtaining the revenue expected around $100 million per year in the both pipelines. And with EBITDA around 55% in both cases.

We are now commercializing the availability capacity with other customers, and we hope to increase the revenue for this year. As I said, unfortunately, we cannot book the revenue for that pipeline, but they are concerning very good and with good results as I said now. I don't know, Miguel...

[Miguel Ulloa Suárez, analyst]

Yes. It's very useful. And I have a second question, if I may, that would be regarding the backlog. How long will it take for you to materialize this backlog? Is this a 2-year, 3-year or 4-year backlog?

[Arturo García, executive]

Yes. Miguel, we are expecting around 3 years more because as you know, our main projects are the Mitla-Tehuantepec and Las Varas-Vallarta highway, the Tren Maya and some platforms for Pemex. We are expecting to finish them in the next 3 years. But now we are preparing some bids for other projects with the government in particular.

And in the case of CICSA, as you know, the installation sector has not an important backlog because we are renewing each year the contract with Telmex and other subsidiaries. But I mean in that case, that represents the 50% of CICSA, we have a backlog but not reported because we are renewing it each year with Telmex. But the main backlog that we are reporting, we are expecting to finishing in the next 3 years, more or less.

[Operator]

[Operator Instructions] The next question is from Alejandro Azar with GBM.

[Alejandro Azar Wabi, analyst]

Arturo, Angelica, I have 2 questions. The first one is regarding your figures for the whole year. If I see, for example, in CICSA, most of your growth comes from the manufacturing and services for oil and chemical industries. This business goes to MXN 6 billion from MXN 2 billion, and I believe that most of this is related to some of the platforms, the Maloob, et cetera. How should we think when you finish building those platforms going forward? How much of your revenues in 2020 were allotted to those platforms?

[Arturo García, executive]

Yes. Alejandro, as you said, the increase of that sector is because of the platform for Pemex. In this case, we are finishing in this year, that project, but we are beginning with other projects, regarding the Dos Bocas refinery and other customers. Yes. And we are expecting, at least this year and the next year to maintain a same level of revenue. I mean as you say, we have in this year around MXN 6,000 million. We are thinking that we can maintain that level at least this year and the next year, even when we are finishing the platforms that you commented.

[Alejandro Azar Wabi, analyst]

Excellent, Arturo. And 1 more, if I may. On the backlog side of CICSA, I believe you have MXN 42 billion, something like that. How much of that would you say you have a joint venture with the other companies?

[Arturo García, executive]

No. That is our proportional -- our participation in the backlog, Alejandro. For example, the Tren Maya, we are constructing with the FCC, the Spain construction company, from Mr. Carlos Slim, but we are representing in our backlog, just our part. Or for example, with FCC, we are constructing to the 2 highways in Panama, but we are representing just our participation in that number. Possibly, the only project with -- yes? Yes, go ahead, Alejandro, please.

[Operator]

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

[Angélica Garnica, executive]

Thank you very much for connecting to this conference. Please keep in touch with you on this additional information. Have a good day.

[Operator]

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