Grupo Mexico SAB de CV
BMV:GMEXICOB
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
72.8
113.9724
|
| Price Target |
|
We'll email you a reminder when the closing price reaches MXN.
Choose the stock you wish to monitor with a price alert.
This alert will be permanently deleted.
Grupo Mexico SAB de CV
You don't have any saved screeners yet
Good afternoon, and thank you for holding. Welcome to Grupo Mexico's First Quarter 2022 Earnings Conference Call.
With us this afternoon are all of Grupo Mexico's top executives, who will discuss the first quarter 2022 financial performance of the company, giving you a summary of the latest news and address any questions you might have at the end of the call.
Before we begin, I would like to remind you that information discussed on today's call may include forward-looking statements regarding the company's results and prospects, which are subject to risks and uncertainties. Actual results may differ materially, and the company cautions not to place undue reliance on these forward-looking statements.
Grupo Mexico undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. All results are expressed in full U.S. GAAP. The presentation may be followed through our webcast, but if you wish to ask a question during the Q&A session, you need to do so via phone call by pressing star 1.
A copy of the slides that the company will be reviewing today is available on the website at grupomexico.com. [Operator Instructions] Now we will begin with Ms. Marlene Finny.
Thank you so much, Carmen. Good afternoon, everyone, and thank you for joining us today for Grupo Mexico's First Quarter Earnings Conference Call.
With me today are the top executives from our 3 divisions. During our call, as Carmen was mentioning, we will be following a presentation that can be downloaded from our website or followed by accessing the webcast that we sent in our press release.
So today's call will be following the program that you can find on Slide #3. I will start with Grupo Mexico's main highlights by going to our main ESG achievements, our scorecards and our financial highlights for the quarter. Then Mr. Leonardo Contreras will provide detailed information regarding our Mining Division, commenting on the industry's economic environment and the division's financial highlights and project updates.
He will then be followed by Mr. Genaro Guerrero, who will go through the Transportation Division's financial and operational highlights. Finally, Mr. Ricardo Arce will comment on the financial highlights and relevant events that occurred during the quarter in our Infrastructure Division. At the end, the line will be open for Q&A.
Before starting with our results, I want to highlight that as a result of our intensive capital investment program throughout the last 20 years, we are positioned to take advantage of the metal high price cycle and we have been able to grow during the past [ year to now ].
As you saw, we are going to start with our main ESG highlights on Slide #5. You heard [ from our ] conference call earlier today. Maybe you already know something that we're going to mention, but I'm going to go through that because it's very important for us.
Over the past 3 years, we have shown continued improvement in our sustainability indicators, reaffirming our ESG focus and performance. We have been able to reduce the accident rate by 16%, increased water recirculation by almost 5% and tripled the population served through our community programs, while we continue to strengthen the mechanisms for listening and address concerns.
During 2021, we achieved a 2-level improvement in the Carbon Disclosure Project's climate assessment. We were able to go from C to B level, positioning the company above the sectors and regions average. Continuing with the good news, our Santa Barbara and San Martin mines obtained their ISO 45001 certification, while La Caridad and our Lime Plant in Sonora obtained the ISO 14001 certificate.
In addition, in Dr. Vagon, the Health Train, which has visited 23 states and traveled about 88,000 kilometers with a team of 64 health professionals who live and work in the train, visited to that [ party ] for the very first time. Dr Vagon, which is the health train, has nearly -- has treated nearly 400,000 patients and provided more than 1.5 million free medical care services during the past 8 years. So we continue reassuring and with this very significant effort.
Now moving to Slide #6. You can see our scorecard, which illustrates our overall progress during the first quarter of 2021 -- 2022, sorry, this year. Despite a 10% copper production decrease, that we will go into details afterwards, but mainly because of Peru, the copper, the favorable copper and by-product prices, along with GMXC operational improvements and increased capacity, allow us to record almost $3.8 million in sales during the quarter, an almost 10% increase when compared to the same quarter of last year.
Along our sales increase, our EBITDA totaled $2.2 billion during the quarter, a 3.1 (sic) [ % ] increase versus 2021. And setting our EBITDA margin at 58.6%. This is a 370 basis point reduction versus the first quarter, mainly affected by [ some ] production in our Mining Division.
The operating income was $1.9 billion, almost 10% increase versus the same period. We would like to mention as well that the Board approved MXN 1.50 dividend per share, which translates into an approximate dividend yield of 6.3%. This is very high when compared to other companies.
Moving to Slide -- I also highlight and you can see that we have that in the next slide, but here as well, we would like to highlight the net cash cost, which averaged $0.81 per pound of copper, an improvement of almost 9% on when compared to the first quarter of 2021, reaffirming our spot as the industry leader in terms of cash costs.
If you move to Slide #7, you can find a brief summary of our financial highlights for the quarter of 2021 and 2022. So you can see the different numbers in case you need it at any point during the presentation.
As you can see in Slide #8, Grupo Mexico continues to have a solid balance sheet with low leverage and a net debt-to-EBITDA ratio of 0.3x. Our debt is mainly issued in U.S. dollars, representing 80% of our total debt while the rest is denominated in Mexican peso. What we normally try to do, as you know, is we try to match our -- in the Mining Division we have all of our revenues in dollars, so that will have our debt in dollars.
So we try to have like a natural hedge when talking about debt. In this slide, you can also see the dividends paid from 2020 to 2022 and their respective annually and quarterly implied dividend yield. As for our debt maturity profile, in Slide #9, we continue to have a comfortable maturity schedule with no payment of over $1 billion until 2035.
Our cash flow show a significant increase of 30% year-over-year, totaling $6.3 billion at the end of the quarter.
I will now pass the call to Mr. Leonardo Contreras, who will comment on our Mining Division's performance.
Thank you, Marlene. Good afternoon, everyone, and thank you again for joining us. I will start with a couple of quick remarks on the current copper market.
During the first quarter of 2022, the LME copper price increased from an average of $3.85 per pound during the first quarter of 2021 to $4.53, an increase of 17.7%. Currently, we're seeing prices in the range of $4.54 per ton, remaining higher than the 2021 average of $4.23, promising a positive outlook for the company.
Some of the factors that we believe are influencing the market are, the most relevant market intelligence houses for the copper market are expecting a market deficit for 2022 of around 100,000 tons. And this deficit assumes growth in demand of about 2% to 2.5% in 2022, particularly in terms of capital consumptions in the United States.
We're foreseeing an economic slowdown by China, basically due to recent COVID-19 outbreaks in the last quarter. We're also foreseeing uncertainty regarding future production growth in Chile and Peru, which together represents around 40% of the global supply.
Meanwhile, Chile in the first quarter registered a production drop of 7% versus last year. And lastly, Russia's copper supply of about 400,000 tons per year has been shut out of the market due to the invasion of Ukraine.
Now let's move forward to the Mining Division's operating and financial highlights on Slide 11. As Marlene mentioned, we saw a decrease in production of 9.9% when compared to the same quarter of 2021, totaling 244,378 tons. Our production level was mainly impacted by the stoppage of our production performance caused by externalities that were beyond the company's control which resulted in a 23% reduction in our Peruvian operations.
Let me dive a little bit deeper on the Cuajone incident. On February 28, 2022, a minority group of protestors from the community of Tumilaca, Pocata, Coscore and Tala with a total of 472 members seized the facilities of the Vina Blanca water reservoir and cut off the water supply to the homes of approximately 5,000 people that live in Cuajone. Prior to this legal action, in February 18, the railway between Cuajone and Ilo was also blocked by a group of community members.
After several unsuccessful attempts by the authorities to restore order through dialogue, on April 20, 2022, the Peruvian government declared a state of emergency in the Moquegua region. On April 21, 2022, the protestors returned the installations of the Vina Blanca water reservoir and the railway to the company.
Southern Copper's personnel immediately evaluated the damage caused to the facilities by acts of vandalism and took the necessary steps to resume production at the Cuajone mining unit. As of today, the Industrial railroad and the Cuajone mine, concentrator and related facilities are operating at full capacity.
On April 30, the Peruvian government issued a ministerial resolution to set up a 3-party roundtable for dialogue with members of the community, government and company officials to better understand all parties' concerns. Despite these unfortunate events, a favorable copper and by-product price environment helped us achieve sales of over $3 billion during the quarter, a 9.8% increase when compared to the same period of last year. Our EBITDA increased over 2.2% year-over-year, netting $1.85 billion, which translates to a 60.1% EBITDA margin.
The division's net income totaled $828 million during the first quarter 2022. We continue to be a cost leader in the industry worldwide, as we achieved an improvement of 8.6% in cash cost net of byproducts from $0.88 during the first quarter of 2021 to $0.81 during this year's first quarter.
The Mining Division's CapEx totaled $233 (sic) [ 231 ] million during the first quarter of the year. As we move forward to Slides 12 and 13, we would like to share some updates on our projects and highlights. Let's first talk about our short-term projects. In Pilares, which is expected to be operational by the fourth quarter of 2022, we have already deployed 50% of the investment and the project has obtained all permits and licenses required.
In regards to our Buenavista Zinc project, the engineering study has been completed. The procurement has a 99% progress and construction site works are in progress with all necessary firms. And as for El Pilar, the results on the experimental leaching pads confirm suitable levels of copper recovery. The basic engineering has already been completed, and we continue developing site environmental activities.
Now continuing with our long-term projects, I would like to talk about Los Chancas, Michiquillay and El Arco. In Los Chancas, we continued to engage in social and environmental improvement for local communities during the quarter and worked in the environmental impact assessment of our 130,000 tons per annum open-pit mine project.
Last year marked a positive year for the Michiquillay project, as we were able to sign a social agreement with the Michiquillay and the Encanada communities, providing an opportunity to improve the residents' life quality through strong social programs, all supported by a solid framework at the project level. All of this, along with the Peruvian Ministry of Energy's approval semi-detailed environmental impact study back in October of 2021, are important steps that will allow the company to initiate an in-depth exploration program during the second quarter of 2022.
When operational, Michiquillay will become 1 of Peru's largest copper mines. Finally, at El Arco, our project located in Baja California, Mexico, we have completed the baseline study and are reviewing the basic engineering analysis to request the environmental permits. In Slide 14, you can see more detail on our growth pipeline of upcoming projects and their impact of production as we continue our journey to reach 2 million tons of copper produced per year. That would be all from the Mining Division highlights. If you happen to have any more questions, we will be pleased to address them during the Q&A session.
Now I will let Genaro comment on the Transportation division.
Thank you, Leonardo, and good afternoon, everyone. I will start on the Slide 16 with the Transportation Division's financial highlights for the quarter. And I'm pleased to announce that our continuous investment plan has allowed us to increase capacity and improve our operations efficiency, propelling our sales 8.6% higher year-over-year to $644 million.
The EBITDA has a significant improvement of 12.7% versus the first quarter '21, and in the quarter in $297 million, a 46.1% EBITDA margin, 1,700 (sic) [ 170 ] basis points improvement versus the same quarter of last year. The net income is $98 million for the quarter, 22% increase versus first quarter '21. The transported volume slightly decrease of 3.3% in net ton-kilometers and only 0.2% in carloads, due to a contraction in the capacity of the railways with which we connected at the northern border of the country, which impacts the agricultural, automotive and intermodal segments.
Despite such capacity contraction, the fluidity in our operations remained at a normal level. The total number of cars hauled during the first quarter of '22 was 465,000 cars.
Moving forward to Slide 17, you can see our main overall highlights. Volumes are higher in the majority of our segments. This quarter's revenue and EBITDA set a new financial record, with revenue increasing 9.6% in Mexican pesos, driven by market share gains and the EBITDA increasing 13.5%, a total of MXN 6,109 million (sic) [ to a total of MXN 6,109 million ]. Committed to generate value to our shareholders, our board approved MXN 0.50 per share dividend, in line with the last quarter dividend.
Continuing with the main variation on our revenues for the quarter on Slide 18, almost all of our segments have revenue growth during the first quarter of 2022, except Automotive segment with a 6% decrease due mainly to the global microchip shortage, which continued to impact manufacturers worldwide. This quarter, top performance was the Industrial segment, with an increase of 33% due to a market share gains along with recovery of new railcar export volume. The other segment with double-digit revenue growth were Metals where the revenue increase was due to an increased market share of Mexican imports and volume of raw materials and finished products.
Energy were where fuel oil, LPG and coal traffic increased. Cement, due to the increased Mexican imports and U.S. domestic volume increase, driven by the recovery of U.S. construction industry. And chemicals (sic) [ Minerals ] due to reactivated iron ore traffic, along with operating efficiency.
With medium growth showing single increases, we had the Minerals segment increasing 8% due to reactivated iron ore traffic and operative efficiencies, the Agricultural segment with a more favorable revenue mix and Intermodal with an increase of 3%.
In the Slide 19, the operating metrics remain constant. Our average train speed decreased 1.3% during this quarter. However, the car velocity increased 5.7% compared to the previous year. The horsepower utilization improved by 0.5% and train length remained at a level similar to first quarter 2021. Moreover, as a result of the efficient operations of the network, the number of crew starts decreased 2.2%.
The expected CapEx for 2022 on Slide 20, is $547 million, where $291 million will be invested in maintenance projects, $116 million for growth projects such as our intermodal terminal to increase capacity around the boats and the Monterrey and Celaya bypasses, and $140 million in efficiency programs, including LNG locomotive conversion plan and the Coatzacoalcos to Medias Aguas Double Track.
With this I conclude the Transportation Division overview, and I will now let Ricardo Arce comment on the Infrastructure division.
Thank you very much, Genaro, and good afternoon to everyone. I will continue today's call by going through the financial highlights of the Infrastructure Division, which are shown in Slide 22.
The Division's solid performance has allowed us to generate value and grow through our different business units. Our quarterly revenues amounted $146 million, a slight 1% decrease when compared to the same quarter of last year, mainly due to lower production of our construction company and lower energy revenues as a result of lower gas prices versus last year.
Despite this revenue decrease, our EBITDA amounted to $64 million, almost 7% higher when compared with the first quarter of 2021. This increase was mainly driven by an improved production performance of our wind farm, El Retiro, also by a recovery of the revenues of our toll roads after the pandemic and because of better results of our engineering firm.
Our EBITDA margin for the first quarter of 2022 was 43.7%, while our net income amounted to $12 million. Before finishing my intervention, I will briefly talk about some of the most relevant events of the division during this quarter.
First, Perforadora Mexico, PEMSA, had in this quarter uninterrupted operations in all of its rigs. The operation during the quarter had an efficiency of almost 100%, 99.9% to be precise, and reached an EBITDA of $18 million, a 2% increase versus the first quarter of 2021. Second, regarding Fenicias, our 168 megawatts renewable energy projects located in Nuevo Leon. Its construction has been completed 100% and it has concluded its testing stage. This wind farm will supply electricity to IMMSA's mining and metallurgical operations.
To date, almost $240 million have been invested, representing 95% of the total cost of the project. Its commercial operation start-up is expected during the second half of 2022. Finally, regarding the Mayan Train construction project, during the first quarter of 2022, the Mexican government decided to change the route to avoid [ defections ] to the Highway #307 that connects Cancun with Tulum. This change will also help to optimize the construction process.
Several activities have been carried out to rescue local flora and fauna. Also, the engineering projects and all required technical studies are currently in process of being developed.
With this, I'm ending the Infrastructure Division highlights. Now I will let Marlene proceed with her closing remarks.
Well, thank you very much. We will now open the line for Q&A.
[Operator Instructions] Your first question is from Alfonso Salazar with Scotiabank.
[ can I have about the Maya ].
You're breaking up, Alfonso.
Okay. Can you hear me better now?
Please continue.
Yes, a little bit, yes.
So the question that I have is regarding the construction of the Maya train, because it has started a debate with environmentalist groups claiming that it could have an impact -- negative impact to the region and a judge stopped the construction.
So how has the risk profile of the project changed since you decided to participate? And what is your -- the opinion of your experts in the ESG team at Grupo Mexico about this project?
Sorry, Alfonso, Ricardo here speaking. Regarding the Maya train, yes, you are right. We are suspended currently because of some injunctions that the government received last month in April. Nevertheless, what I can tell you is that we are following only the instructions that -- in this case, the owner of the [ poli of this ] Fonatur is giving us in terms of the -- of how to proceed with the construction.
So the risk profile for us is nothing. Basically, we don't see any risk on our side. We're basically executing the orders of our clients regarding this project.
Does that answer your question?
Yes.
Your next question comes from Regina Carrillo with GBM.
I just have 1 regarding the dividend. Could you maybe give some more color on why the decision not to raise the holding level in what we should expect going forward?
Regina. As you know, and we have discussed previously during other calls, our growth projects are our #1 priority and focus. We believe that CapEx deployment in our Transportation and Infrastructure division will accelerate in the next quarter.
In addition to this, as we did during the first quarter of 2020 with the beginning of the COVID-19 pandemic, we were very cautious -- we tried to be very cautious regarding the lack of certainty and visibility of what would happen in that time.
So we believe that right now, it is also important to be cautious as we see concerns regarding the consequences of the Russian and Ukraine conflict and inflation and lower growth worldwide. So we want to be cautious as we did at the beginning of 2020 with a lack of certainty and visibility.
We hope that in the next quarter, we will have more visibility and certainty on how everything evolves and be able to increase our dividend, but as we did in 2020. In addition to that, I think it is very important to mention as well that since 2020, we have increased our dividend yield from 5.2% in 2020 to 7.2% in 2021. And assuming the same dividend, it will be 6.3% in 2022, which is higher than most Mexican companies and also mining and industrial corporations as well. That could change in the next quarters and as we have more visibility.
Your next question comes from Carlos De Alba with Morgan Stanley.
Just a few questions on Asarco. Can you give us please an update of the outlook for production and cost before byproducts? And then a couple of details on the Infrastructure division. How much was the energy generation in the first quarter?
And how do you see that evolving in the coming quarters? And then any comments on the level of tariffs for the -- for PEMSA and the contracts that the company has with PEMEX, given changes that we have seen in oil prices and activity?
Carlos. In regards to Asarco's outlook, we're still foreseeing a production around 125,000 threshold. And with regards to the cash cost before byproducts, we're seeing it slightly lower to what we reported during this quarter, around $2.50 per pound. Now regarding your 2 questions of the Infrastructure Division.
In terms of the total power generation, our generation for this quarter was 712 million of megas versus -- it was a decrease of 6% versus last year because of a planned maintenance stoppage during this year in our generators. So that's to answer your question #1. Question number 2, regarding the rates of PEMSA. We are currently in negotiation with PEMEX regarding the rates for the rest of the year.
We have, at the same time, a lot of contracts finishing during the year. So we are putting both things on the table to try to get the best outcome for Grupo Mexico. So negotiating at the same time the level of rates, and also the extension of the contracts hopefully for this year and the next as well.
And our next question comes from Thiago Lofiego with Bradesco.
Two questions. The first one, if you could comment on the news that the Mexican government is preparing a bill to set maximum rates for rail in Mexico. So how likely do you think this is to go through? And how would you deal with it in this scenario?
And the second question is on -- still on Grupo Mexico Transportes. Can you give us more color on how and what subcomponents of factors do you see the most opportunity to gain market share this year and the next?
Thank you, Thiago. This is Genaro Guerrero. First, let me tell you that GMXT has been reviewing and commenting with the Ministry of Transportation and the regulatory agency the proposal, trying to clarify and understand what the proposal is based on.
And what would be the effects, what would be the effects on our operation. Until now, our expectation is that it would not be easy to implement this proposal due to -- there are not many products of the basic basket that are transported by rail. And where there could be, as is in the case of corn for human consumption, the cost of transporting this product has a minimal impact on the price of the final product. On the other hand, the way to impose a cap on the railway rates, it would have to be through the analysis of a lack of competitiveness defined by the FCEC -- the Federal Commission for Economic Competition. Then that is our expectation as of today and the comment that I can give you in that respect.
In terms of the market share. Well, we have been focused on a very intensive program to provide the customer logistic solutions. We have an intelligence market department that has defined where are the volumes that are able to be get by the railway. And we are focused on that market. We are still having a very low percentage of -- well, not a very low but have been improved. But -- but we have a very good upside potential in terms of the market share that we can gain out of the transportation by truck. Well, that is basically our strategy for gaining market share in the future.
And I'm not showing any further questions in the queue.
So thank you, everybody, for joining. Thank you, Leonardo, Ricardo, Genaro for being here today. We hope to hear you on the next quarterly call. Have a good day.
And thank you, ladies and gentlemen. This concludes our program. You may now disconnect.