Grupo Carso SAB de CV

BMV:GCARSOA1

Earnings Call Transcript 2022-Q4

[Operator]

Good morning, everyone, and welcome to the conference call to discuss the results of fourth quarter 2022 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 Infrastructure and Construction, and Ms. Angelica Pina of Investor Relations. I would now like to turn the call over to Ms. Angelica Pina. Please go ahead.

[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 through the fourth quarter financial results, and then we will take your questions. In this quarter, the consolidated figures of Grupo Carso, SAB CV have been preferred, 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 fourth quarter of '21 figures were not restated. Elementia's financial information began to be consolidated as of May 2022 in Grupo Carso. Consolidated sales of Grupo Carso improved 47.5%, totaling MXN 55,315 million. This was mainly due to [ Cartier ] construction, which posted a 68.8% increase adding MXN 3.5 billion more, due to the progress in infrastructure projects and higher ore drilling activity. Grupo SAB same went up 19.2% with sales improving at the department stores and restaurants due to the holiday season. Complex grew 6.2% related to higher volumes in hires and cables. Carso Energy increased 86.8% mainly from recording additional revenue from the two hydroelectric plants in Panama. Elementia in this quarter contributed to 14% of consolidated sales coming from higher prices and demand in control systems and cement mainly in the U.S.

Excluding Elementia, sales increased 26.2%, totaling MXN 47.3 billion. Consolidated operating income increased from MXN 4.2 billion to MXN 12.2 billion, while EBITDA went up 121.7% with lower administrative and selling expenses, reducing 210 basis points as a percentage of sales from 12.6% to 10.5%.

The main increases in profitability came from Grupo Condumex and [ PCA ], both of them with a better product and project mix. EBITDA totaled MXN 9.9 billion, higher than MXN 4.5 million a year ago, and Condumex booked an extraordinary gain related to the Elementia acquisition similar than goodwill.

Excluding Elementia, the operating income and EBITDA increased 162% and 86.5%, respectively. The consolidated controlling net income increased 130.8%, reflecting mainly the improvement in operating results. Explaining the performance by division, the total sales of Grupo SAB were MXN 22.2 billion, increasing 19.2%. The [adquirio] Promotions contributed favorably to these recoveries. CS grew 20% its total sales, somewhat 20.3% and [ indiscernible ] 16.7%. The retail gross profit increased 20.4% and operating expenses reduced from 22.2% to 22% of sales.

Therefore, operating income totaled MXN 2.4 billion compared to MXN 2 billion last year. EBITDA improved 18.9% and net income reached MXN 1.8 billion compared to MXN 115 billion in the fourth quarter of the previous year. In the Retail division, Grupo Carso SAB executed the voluntary tender offer for the outstanding shares of group of [ Somos ] owned by the industry public at a price of MXN 26 per share, payable in cash in Mexican pesos, acquiring 13.1% of this after the tender offer, a 14 percentage of 99.88%.

Regarding the Industrial division, Grupo Condumex posted a 6.2% improvement totaling MXN 12 billion. This increase came from the automotive sector with higher cable volumes and copper prices. Despite plant shutdown to layer customers. The operating income and EBITDA of the Industrial division went up 188.1% and 15.3%, respectively. Restoring net income improved 59% going from MXN 1.9 billion to MXN 3.1 billion this year.

[Carso Infraestructura y Construcción] contributed with additional MXN 3.5 billion [indiscernible], increasing 58.8% and reaching MXN 11.8 billion. The divisions that have the best performance were infrastructure was MXN 2.9 million more due to the progress in the construction of the second section of the mining train and two highways. Manufacturing and services for the oil [indiscernible] industry for land drilling increased 233.1% from fluid, direction and drilling and refer of oil wells. And pipeline installations, which grew 32.6% due to telecom projects. The operating income and EBITDA and Carso Infraestructura y Construcción improved from losses of MXN 443 million and MXN 259 million to profit of MXN 1.8 billion and MXN 2 billion, respectively. It is important to note that in the last quarter of the previous year, the cost of rehabilitation of 912 were recorded.

Controlling net income increased MXN 51.3 billion, driven by the same operating results. The projects currently in place at the Las Velas-vallarta and Mila Teaneck Highway, telecom installation services, equipment for the petrochemical industry, drilling of deep wells for PEMEX, [better services] and equipment for the oil industry and the [expansion] at [indiscernible] Section 2 of the Mayan trains. The backlog totaled MXN 38.1 billion compared to MXN 48.8 billion a year ago, mainly including additional drilling services.

The pace of Elementia increased 1.6% from MXN 7.8 billion in the fourth quarter of 2021 to MXN 7.9 billion in the fourth quarter of 2022. This increase was due to price revisions in complete systems and cement operations, mainly in the U.S. Elementia operating income increased 16.6%, reflecting the increase in sales as well as cost efficiencies that improve profitability.

On the other hand, EBITDA grew 16.2% from MXN 1.3 billion to MXN 1.1 trillion. Controlling net income in [ Namibia ] fell 58.7% to MXN 203 million compared to MXN 491 million in the previous year. The sales of Carso Energy totaled MXN 1 million for additional revenues came from the two hydroelectric plants in Panama. For more rain and higher cost prices of energy were recorded, coupled with revenue from the Samalayuca-Sásabe pipeline. The [ Guanajuato ] and [Guanajuato] gas pipe and Texas U.S. where we have a 51% participation, received rents from gas transportation.

However, the revenues are not resected in consolidated sales. The operating income and EBITDA of Carso Energy was up 229.6% and 164.5%, respectively. Net income increased 38.3%. Lastly, in the gas pipeline business, we have progress in the construction of the compressor station for the Samalayuca-Sasabe 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] And our first question will come from Laisha Zaack with DBM.

[Laisha Zaack Carrillo, analyst]

I just have two. And the first one is in line with success. Do you mind giving us more color on why the company core results this quarter? And the second one, would you mind giving us some guidance for 2023. What are you seeing? How are the businesses going to perform, and that would be it for me.

[Arturo García, executive]

Regarding Carso Infraestructura y Construcción the increases -- in the past year, in 2021, we recorded a provision regarding the rehabilitation of the [ indiscernible ] Mexico City. Then we have an extraordinary cost booked in that period. I mean is this year, I mean, 2022, we have no extraordinary impact about that because it was provision in 2021. And on the other hand, we increased in this year in portal projects, mainly regarding payment and regarding hydrocarbons industry. And the advance of the [ Mazatlan ] and modern culture project cause this gain in Carso Infraestructura y Construcción.

I mean what an extraordinary year in sales and gains in [indiscernible]. And on the other hand, we have no extraordinary impact realized with the deamidation of the south in Mexico City. That is the main reason for the extraordinary increase in [indiscernible].

[Laisha Zaack Carrillo, analyst]

Do you mind sharing the backlog?

[Arturo García, executive]

Yes. The backlog today is around MXN 40 billion now, I mean MXN 38, MXN 39 billion. But maybe it's important to say that in that backlog, we have not yet recognition, the construction Civil backlog because we are now in the process of sign contract with certain hospitals and other projects. We are going to reach around MXN 12,000 million more in backlog. And on the other side, we have now the backlog of the installation sector, because we are renovating the contract every 3 or 6 months. But if we consider that the present backlog were around MXN 50 billion in Carso Infraestructura y Construcción.

[Operator]

[Operator Instructions] Our next question will come from Miguel Ulloa with BBVA.

[Miguel Ulloa Suárez, analyst]

The first one would be regarding the extraordinary income in the case of Condumex. Could you provide some color if this is something that you has to do with Elementia, how does it play the profit and loss? That will be the first one.

[Arturo García, executive]

Miguel, regarding the extraordinary gain Grupo Condumex, as you know, Grupo Condumex own the shares of Elementia and Fortaleza. And as a consequence of the applying a certain IFRS, we need to make a kind of [ PPA ] for the Elementia and Fortaleza share, that pose a kind of goodwill by [ MXN 3,200 million ] and that is -- and that was recorded in this quarter. And because of that, we have that extraordinary impact. But it's important to say that it's just a onetime impact okay? I don't know if that is clear for you.

[Miguel Ulloa Suárez, analyst]

Yes, it's clear. And so going forward and just to build on the previous question. What kind of margins are you expecting in the case of Condumex and [indiscernible].

[Arturo García, executive]

Yes. The margins that we are waiting for the end year in 2023 by [ indiscernible ] maybe is going to be similar. Give me a second. We are taking around 12% in Carso Infrarecture amount 13% or 14% in Grupo Condumex. In the case of Grupo Condumex the exchange rates and the situation of the construction market that could impact a little bit, but we are waiting to reach in other business and maintain a margin around 13%, 14%.

[Miguel Ulloa Suárez, analyst]

This was our operating or EBITDA margin?

[Arturo García, executive]

Operating margin.

[Miguel Ulloa Suárez, analyst]

Okay.

[Arturo García, executive]

EBITDA would be around 2 points more.

[Miguel Ulloa Suárez, analyst]

And in terms of cost income going forward in the case of [ Siksa ] when do you feel -- when do you think it's going to end the Mayan train construction and income related to it?

[Arturo García, executive]

Yes, we are expecting a similar year in [ indiscernible ], mainly lower than this year because we finished third project. But on the other hand, we are increasing the construction. The field construction sector, then we are expecting around MXN 38 billion MXN 39 billion for this year income in Carso Infrarecture. And expecting new projects because as you know, we are finishing infrastructure projects in this year than most of them, but we are waiting for more bids in the future.

[Miguel Ulloa Suárez, analyst]

The last one would be regarding the effective tax rate. I think it's fairly, fairly low. Could you provide some color on that?

[Arturo García, executive]

You mean Grupo Carso?

[Miguel Ulloa Suárez, analyst]

Grupo Carso, yes.

[Arturo García, executive]

Okay. Yes, we have a different process Miguel. One of them is the inflationary adjustment that, as you know, is in according to the Mexican law we have extraordinary effect because of our project in Carso Energy, can adopt the investment in short term because of the kind of projects. And that accounts our fiscal depreciation too higher than the financial depreciation. I think the depreciation of these projects and the inflationary adjustment are the main reason of that -- of the level of the tax.

[Operator]

And our next question will come from Laisha Zaack with DBM.

[Laisha Zaack Carrillo, analyst]

I just have -- I just need to know what are the outlook -- what is the outlook for the company in your subsidiaries for 2023? What would be that you expect -- I don't know, maybe in performance, sales performance and EBITDA, if you can share that with us.

[Arturo García, executive]

Thank you. We -- for this year, we are expecting -- even though this year was a very good one. We are expecting an increase [indiscernible] maybe for around 10% for the 2023. By division, we have good expectation in the retail sector and [ indiscernible ] time the same level both with new projects, mainly in the energy sector. Grupo Condumex has new projects, mainly in the automotive sector, but that all depends on the recovery of the automotive industry. But we are waiting and to maintain the same level.

Then as Grupo Carso, we think we can reach around 9%, 10% of increase for this year and maintaining our operating margin, maybe we can reach one point more than this one. I mean we are ready in an EBITDA around 15%. We saved more than MXN 200 billion for this year.

In the case of Elementia, we are investing in different business in order to increase our capacity. For example, in [ Allura ] in the U.S. that we are weaving an increase in the protosystem sector. In cement in Mexico, we are investing an important way for increase our capacity, and we are waiting the to 10%, 11% in case -- [percent increase] in this year. We are confident that we have the conditions to maintain this number and to increase in the 2023 year. I don't know if you have a question for a specific sector. But in all of the sectors, we have a similar expectation of increase.

[Laisha Zaack Carrillo, analyst]

Okay, yes. And just to clarify, the backlog of [indiscernible] is expected to be around 60 for the year? Or do you expect more -- putting more contracts throughout the year?

[Arturo García, executive]

I don't know if I [indiscernible] because we have a -- some problem. But if you are talking about the [Grupo Portuario S.A.] backlog. We don't see clearly new projects in the infrastructure sector but we have new projects in the petrochemical sector. For example, we recently purchased two platforms to deep in this quarter, and we are waiting for new business in that for that platform, but even when we are not expecting a new important projects for infrastructure this year.

In the rest of the sector, we have an important one as in the installation sector, will continue increasing the telecommunication business. In the civil construction, we have around MXN 12,000 million backlog, et cetera. Then we are going to maintain our level and maybe to bet that in the third or the fourth quarter of this year appears no bid. But by now, we don't know about notes regarding closure.

[Laisha Zaack Carrillo, analyst]

Okay. Perfect. And just to finish one more question. Do you mind giving us some more color on the compressor patient in Carso Energy? I remember you said last conference call that it was around 35% finished. So do you have any updates on that?

[Arturo García, executive]

Yes, regarding the compression expansion, we have to finish it in the second, maximum this year, quarter of this year. And that gives around 50%, 60% increased capacity for the samalayuca pipeline. And in this of the business, it depends of the -- not just for CFE, but both for other customers that we are waiting, maybe in the south of the United States, even in Mexico -- in the north of Mexico.

But it's an important business because we have an investment around $70 million, $80 million, and we are increasing around 50%, 60% of capacity in a pipeline of $700 million. Then the potential of the new business with excellent margins is good.

[Laisha Zaack Carrillo, analyst]

Okay. Thank you very much.

[Operator]

And there are no further questions at this time. I would like to 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 talking again with you. Have a nice day.

[Operator]

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines at this time.