Grupo Carso SAB de CV

BMV:GCARSOA1

Earnings Call Transcript 2021-Q4

[Operator]

Good morning, everyone, and welcome to the conference call to discuss the results of the fourth quarter 2021 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 Pina of Investor Relations. I will now turn the call over to Ms. Angelica Pina. Please go ahead.

[Angélica Garnica, executive]

Thank you very much. Welcome, everyone, and good morning. 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 21.6%, totaling MXN 37.8 billion. Grupo Sanborns posted a 26.1% increase with customers returning to malls and having end-of-season promotion. Condumex stood out by growing 15.3% related to higher cable volumes in the domestic and export markets combined with higher sales prices in copper. Carso Infraestructura y Construcción went up 14.9% due to higher drilling operations. Carso Energy also increased, recording additional MXN 690 million in revenue from gas transportation services from the Samalayuca-Sásabe gas pipeline.

Consolidated operating income increased from MXN 3 billion to MXN 4.6 billion and EBITDA went up 22%, with a better gross margin improving 100 basis points in the retail, energy and industrial divisions and operating leverage with expenses controlled across the board, reducing a percentage of sales from 14.3% to 12.6%. The main contributor to the improvement in profitability were Grupo Sanborns and Grupo Condumex increasing 81.6% and 32.2%, respectively. While Carso Energy improved from a loss of MXN 258 million to an income of MXN 694 million.

EBITDA totaled MXN 4.8 billion, higher than MXN 3.9 billion a year ago. The consolidated controlling net income increased 340.5%, reflecting mainly the improved operating results and a lower financial expenses due to positive ForEx valuations in the quarter.

Explaining the performance by division, the total sales of Grupo Sanborns were MXN 18.7 billion increasing 26.1%. These results reflected better mobility in Mexico City and the metropolitan area and aggressive sales promotion. In [indiscernible], which grew 30.6%, while Sanborns and iShop, MixUp grew 34.9% and 14.6%, respectively, in total sales. The drivers of sales were big-ticket items, technology, electronics, white goods, furniture and a better performance was observed in higher-margin categories such as prepared foods, clothing and shoes. The retail gross profit increased 30.4% and the gross margin improved from 31.4% to 32.4%. Operating income totaled MXN 2 billion compared to MXN 1.1 billion last year. EBITDA improved 105% and net income reached MXN 1.5 billion compared to MXN 469 million in the fourth quarter of 2020.

Regarding the Industrial division, Grupo Condumex posted a 15.3% improvement totaling MXN 11.3 billion. This was due to the increase that came mainly from the telecom and construction sectors, with higher cable sales volumes in most of the plants and higher copper prices by 31.2%. In the automotive sector, domestic automotive payable sales increased as well as exports due to the recovery of the market in South America and Europe. But auto part sales decreased due to several shutdowns of our customers during the quarter, while other customers suffered volume reductions as they were at 50% of their capacity due to the lack of components.

The operating income and EBITDA of the Industrial division went up 38.2% and 1.9%, respectively, with lower profitability in auto parts, reflecting the impact of the production stoppages as well as increases in raw materials, logistics and labor expenses. Consolidated net income increased from MXN 367 million to MXN 1.7 billion this year, driven by effects of favorable ForEx valuation.

Carso Infraestructura y Construcción posted MXN 7.5 billion in revenues, increasing 14.9%. The divisions that had the best performance were manufacturing and services for the oil and chemical industry with a 67.2% increase from fluid, direction and drilling and repairs of oil wells as well as the start of deep well drilling contracts.

Structures and equipment includes the manufacturing of equipment for the petrochemical industry. Infrastructure increased revenues 31.6%, including the progress in the construction of the second section of the Mayan train and higher production in the Mitla-Tehuantepec highway. Pipeline installations remained practically stable because of the completion of the Samalayuca-Sásabe gas pipeline. Civil construction and housing decrease is worse were at a high point of execution last year and now finished.

Even though manufacturing and services for the oil and chemical industry contributed to higher profitability, the operating income and EBITDA in Carso Infraestructura y Construcción decreased 67.8% and 58.1%, respectively, from including the cost of the rehabilitation services for Line 12 of the SEC metro. Controlling net income decreased 69.7% from the operating results and the ForEx situation in some businesses. The projects currently in place are the Lazaro Balata and Mitla-Tehuantepec highways, telecom installation services, equipment for the petrochemical industry, deep well drilling for PEMEX, value services and equipment for the oil industry and the Escarcega Calkini section 2 of the Mayan train. The backlog totaled MXN 48.8 billion compared to MXN 48.3 billion a year ago.

Lastly, the sales of Carso Energy totaled MXN 926 million for additional revenues of MXN 690 million came from the Samalayuca-Sásabe pipeline, being able to provide gas transportation services to the CFE since February of this year -- of last year when the previous year did not have revenue. The quarterly operating income improved from a loss of MXN 258 million to a profit of MXN 694 million. EBITDA increased 276.8%. The Waha-Presidio and Waha-San Elizario gas pipeline 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.

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

[Operator]

[Operator Instructions] Our first question comes from Alejandro Azar with GBM.

[Alejandro Azar Wabi, analyst]

Just 2 quick ones. The first is on Grupo Condumex. It seems that you have a higher than normal operating profit. Would you share with us if there is some evaluations or sale of assets over there? And the second one is on -- if you could give us your guidance for -- no, not guidance for 2022, but your outlook for 2022 by subsidiaries and related also on your outlook on CapEx is your -- are you still projecting between $130 million and $150 million for 2022, including the investment for the compressor in Carso Energy? That will be my question.

[Arturo García, executive]

Let me start for the CapEx for subsidiary. As you commented, the most important is Carso Energy. We are talking about MXN 1.9 billion. The most of that is regarding the compression for the pipeline. And in the retail group, we have around MXN 1.3 billion, mainly for remodeling stores. I mean in the industrial sector and in Condumex, we have around MXN 1 billion. That is our planning the CapEx for 2022 year.

Regarding our idea for this year, 2022. We are planning a growth of about 10%. In the [ coal ] sector, we are going to have a growth. We are expecting the main growth in Grupo Sanborns that has recovered the level before pandemic. Both in the industrial and construction sector, we have an increase around 8%, 9% more or less even when we grow in an important shape in this year, we are expecting a new growth for the midyear. And in the case of Carso Energy, we are maintaining the same billing that we have in the [indiscernible] pipelines operating the whole year. As you know, the Samalayuca was operating on 10 or 11 [ holes ] in this year, we are going to start operating the full year. Then we are going to have a better sale to the pipeline [indiscernible] billing. That is our idea for 2022. We see around 10%, 11% growth at the Carso Group. And the contributions, we are expecting a better numbers in [indiscernible]. If you have another question, the CapEx?

[Alejandro Azar Wabi, analyst]

Yes, Arturo. Regarding Grupo Condumex during the quarter, it seems that the operating income is higher than normal, even higher than EBITDA. So my question is, is there something a one-off, onetime benefit there that -- if you could explain more on that?

[Arturo García, executive]

Well, we are expected to maintain that level but it all depends on the copper price. As maybe you have seen the copper price levels in the fall last year have had a positive result for us. And if the copper price maintain that level, we expect to maintain that margin for this year. If the copper price lost the value, maybe we are going to decrease maybe half [indiscernible] or something like that. But we don't have an extraordinary effect. Sometimes we have extraordinary effects that caused the exchange rate in this case is more with regard to the copper price.

[Operator]

[Operator Instructions] The next question is from Miguel Ulloa with BBVA.

[Miguel Ulloa Suárez, analyst]

My first question would be regarding the rehabilitation works in line 12 in Mexico sea. Could you give us an idea of what do you expect for 2022 and have you already provisioned all the costs related to these works?

[Arturo García, executive]

Miguel, it's really important to say that the administration decided in agreeing with our auditors to make a provision for the whole cost that we are going to spend in order to the rehabilitation of the 12 line of the SPC metro. I mean in our calls that we are [indiscernible] for you. We already recorded the provision for the total cost. Carso Infraestructura y Construcción is reporting a loss in this current [indiscernible] profit a year, then we don't have a pending cost to recognize for this year in regards with 12th line of the metro. That was a decision, then we have our results of 2021 includes the total cost then 2022 year is free of extraordinary costs regarding the 12th line of the metro.

[Miguel Ulloa Suárez, analyst]

Okay. That's very clear. But just a follow-up regarding that. Could you give us an idea of the profitability of CICSA excluding these costs?

[Arturo García, executive]

Yes, just a minute. If you exclude that cost, the profitability was around 9.5%. I mean operating profit and EBITDA around 11% before the provision.

[Operator]

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

[Angélica Garnica, executive]

Thank you very much for your interest and your participation in this conference call. We look forward to speaking with you again. Have a great day.

[Operator]

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