U.S. markets closed

Edited Transcript of UNACEMC1.LM earnings conference call or presentation 9-Mar-20 3:00pm GMT

Q4 2019 Union Andina de Cementos SAA Earnings Call

Lima Mar 26, 2020 (Thomson StreetEvents) -- Edited Transcript of Union Andina de Cementos SAA earnings conference call or presentation Monday, March 9, 2020 at 3:00:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Álvaro Morales Puppo

Unión Andina de Cementos S.A.A. - Financial & Corporate Development Manager

* Francisco Barúa Costa

Unión Andina de Cementos S.A.A. - Investment Manger

================================================================================

Conference Call Participants

================================================================================

* Lucia Calvo Perez

LarrainVial S.A., Research Division - Equity Analyst

* Sebastián Montoya

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Excuse me, everyone. We now have Álvaro Morales and Francisco Barúa in the conference. (Operator Instructions) I would now like to turn the conference over to Francisco Barúa. Francisco, you may begin.

--------------------------------------------------------------------------------

Francisco Barúa Costa, Unión Andina de Cementos S.A.A. - Investment Manger [2]

--------------------------------------------------------------------------------

Thank you, Kathleen. Good morning, everyone, and welcome to UNACEM's Fourth Quarter 2019 Earnings Conference Call. This morning, I am glad to be representing Carlos Ugás, who will be unable to attend this call. I will elaborate on the highlights of this past year and the results of the fourth quarter of 2019. As always, we will have Álvaro Morales, UNACEM's CEO (sic) [CFO] who will be in charge presenting this quarter's and 2019 financial results. In the end, we will open up for Q&A.

Please note that we might disclose some forward-looking statements that should be considered for reference only. We will also be recording this call.

Let me start with the presentation. 2019 was a challenging year for -- in both external and internal fronts. It was a year marked by trade wars, impeachment and social unrest. The U.S. and China were able to find an initial agreement for their trade differences, a situation that shed some light for future international trade and [helped with the incumbent bid] on a highly politicized impeachment process. However, most recently, coronavirus is eliminating the positive impact of such agreement, at least in the short term.

In our region, social unrest in Chile, Bolivia, Colombia, and Ecuador exposed the weaknesses of our demographies, revealing unexpected dissatisfaction of the [import reasons] in favor of the market. It is expected that such reasons would have a significant impact on the respective countries' existing [pay account]. In Peru, we have following -- we have been following closely this event. We have experienced our unique form of [self-allowance] with the pressure of the parliament and the election of the newest committee member [Frederic Verhomzon]. Likewise, lowering corruption is at the forefront of the [Congress' imposing] its current agenda. It is important to mention that UNACEM made a public announcement in [sobriety] and we didn't contribute to any political party or candidate during the electoral campaign.

In terms of economics, Peru continued its growth path [with reaching an expanding] 2.2% increase in GDP for the whole year. That means 125 months and 21 years of continued growth. Like the political cycle, the economic year started with enthusiasm and slowed down at the end of the year, growing by a weak 1.9% in December. This growth was consistent across all the economic sectors except for fishing and manufacturing, which increased by 25.9% and 1.7%, respectively. Our construction sector grew by 1.5% in the year, amidst a decrease in December of 9.9%, supported by strong demand dispatches in the northern and central region of Peru. The former mostly because of reconstruction efforts, while the later -- or the latter due to important private investment projects.

The internal consumption of cement nationwide grew by 4.7% in 2019, as reported by our National Institute of Statistics, INEI. In that sense, during the same period, UNACEM's cement dispatches grew by about 5.1%, just 1.5% in the fourth quarter. Given the current political and international environment, we remain cautious of our future cement dispatches, volatility may continue within our business.

UNACEM remains financially disciplined as we refinance our debt in order to reduce U.S. dollar exposure, reduce the risk on our investment profile and to lower financial expense. This will lower the risk profile of our balance sheet while we continue delevering the company. Likewise, we maintain our cost-efficient policies, limiting CapEx to maintenance and mandatory projects.

Our subsidiaries reported solid results during the quarter. Drake posted record profitability, showing strong signals of recovery in a very competitive environment. CELEPSA also recorded a 14.3% increase in revenues during the quarter while maintaining profitability. On the other hand, UNACEM Ecuador posted negative results due to a slowdown in the economy, mainly because of the government's efforts to lower fiscal deficit that resulted in [special modification] and postponing some of our work and project preparations and [flowthrough].

Finally, [on the comments of highly negative] results, I think [that covers] the operations in (inaudible). Regarding our brands, once again, Cemento Sol and Cemento Andino have been considered among the top 20 in Peru by the BrandZ Peru Report published by [Intech] Peru. These are the only cement brands competing the river. We are aware that it is a recognition to our reputation and quality of our products. Therefore, we are committed to maintaining, consolidating and improving these levels of products.

In some appealing matters, our Board meeting held in February 26, 2020, summoned the General Shareholder Meeting, which will take place on March 24, 2020. We expect to see you all there. Finally, we would like to highlight that after 25 years, Carlos Ugás announced that he will step down as UNACEM's CEO and that he will be succeeded by (inaudible) elected CEO, effective July 1, 2020. We are excited about the changes to come, and we thank Carlos for his impressive and highly profitable tenure. We will keep you posted on future developments regarding this matter.

That will be all on my side. Thank you very much for your attendance this morning. And now I will pass it over to Álvaro for a detailed analysis of our financial results.

--------------------------------------------------------------------------------

Álvaro Morales Puppo, Unión Andina de Cementos S.A.A. - Financial & Corporate Development Manager [3]

--------------------------------------------------------------------------------

Thank you, Francisco. Good morning, everyone, and thank you for joining us today. Despite the challenging international and local environment that we faced in 2019, I am glad to go through the highlights for the fourth quarter as well as for the full year consolidated results. Our consolidated revenues during the fourth quarter 2019 increased by 0.6% versus the fourth quarter 2018, driven mostly by higher energy revenues in Peru and ready-mix dispatches in Skanon. PREANSA Chile operations showed an important increase during this quarter, also, the incorporation of ARPL and Vigiandina to the group results.

Full year consolidated revenues increased by 5.5% compared to 2018. This was driven mostly by: one, higher energy volumes with a better margin in CELEPSA; two, higher UNACEM stand-alone volume; three, higher ready-mix volumes in Peru and in the U.S.; and four, a sharp increase in the PREANSA Chile precasts. In Peru, UNACEM Cement dispatches recorded a 5.1% increase in 2019 compared to 2018 as a result of the important recovery of our bulk products and the development of important mining projects that increased our bulk dispatch. Nevertheless, clinker export recorded 709,000 tons, 23.6% lower than the 928 tons -- 928,000 tons recorded in 2018.

2019 total ready-mix dispatches reached 3.7 million cubic meters compared to 3.4 million cubic meters in 2018, 9.8% higher. In 2019, our ready-mix companies in Peru dispatched 2.8 million cubic meters, higher by 2.7% than the 2.7 million cubic meters dispatched during 2018. The moderate growth of ready-mix dispatches in Peru was in line with the performance of the construction sector during the year. In our case, growth is explained by investments on the private site, such as the expansion of the Toromocho mine and the construction of Mina Justa.

Likewise, UNICON and Concremax maintained their position as leaders in the ready-mix industry with a market share of 56% in Lima and 50% nationwide.

Regarding UNACEM Ecuador, full year cement volumes recorded 1.1 million tons sold, lower by 9.6% than in 2018. UNACEM Ecuador's revenue in U.S. dollar were 10% lower than in the previous year, with slightly lower average prices. EBITDA margin was 41.8%. CELEPSA full year revenues were 15.3% higher vis-à-vis 2018, with energy sales that reached 1,598 gigawatts, higher 16.7% than in 2018, mainly due to higher demand from its construction price including UNACEM stand-alone and [electro luna]. Skanon keeps improving and closed the year recording 638,000 short tons of cement sold, a figure 5.4% lower than in 2018 but with an average price 9.4% higher than 2018; $98.4 per short ton versus $90 per short ton in 2018. As a result of this, our U.S. operation recorded an EBITDA of $17.6 million compared to $9.6 million achieved in 2018.

As stated before, full year consolidated revenues increased by 5.5% compared to 2018. Full year consolidated cost of goods sold was 6.2% higher than in 2019 compared to 2018, explained by: one, the increase in UNACEM stand-alone average cost of goods sold, mainly due to fuel and [gas]; two, higher cost of goods sold in PREANSA Chile due to higher volume; three, an increase in cost of goods sold in UNACEM Ecuador due to lower volume; four, the incorporation of ARPL and Vigiandina, both with lower margins. For the reasons explained before, our gross margin was 27.4% compared to the 27.9% registered in 2018.

Our administrative expenses in 2019 were 2.4% lower, mainly due to the elimination of the management team at UNACEM stand-alone. Selling expenses were 18.6% higher than in 2018, mainly due to the higher marketing and advertising expenses in UNACEM stand-alone. Other income was 18.3% higher, explained by the nonrecurring income from the sale of ready-mix trucks in Skanon. Other expenses during 2019 were PEN 1.4 million lower during the year, mainly due to lower amortization expenses in UNACEM stand-alone.

For the reasons explained before, our consolidated operating profit for the year was PEN 751 million, higher by 5.9% than the PEN 709 million recorded in 2018. The consolidated EBITDA for the year was PEN 1.22 billion, 4.3% higher than the PEN 1.17 billion in 2018. This increase is mainly explained by: higher cement volumes made from lower average prices and higher cost goods of sold -- cost of goods sold in Peru; higher volumes and average price of energy in Peru; lower cement volumes made from higher average prices; higher ready-mix volumes with better prices in the Skanon; higher ready-mix volumes in Peru with similar average prices; higher volumes and revenues in PREANSA Chile; lower prices and sales volumes in Ecuador; lower administrative expenses due to the elimination of the management fees.

EBITDA margin was 29.7% for 2019, similar to the 30% of EBITDA margin in 2018. The slightly decrease in the margin was due to higher cost of goods sold in UNACEM stand-alone and lower cement and revenue dispatches in Ecuador, compensated with better margins in the U.S. operations. Consolidated net debt was PEN 4 billion. Therefore, the net debt-to-EBITDA ratio was 3.3x at the end of 2019.

During the year, we have amortized our debt according to schedule. As previously reported, in October, we executed the redemption of our outstanding $225 million of our senior notes 2021. In order to do so, we raised a total of $230 million with 3 bank loans in soles. As a result of this, our U.S. dollar-denominated consolidated debt represents only 24.6% of our total debt compared to 52.8% of the U.S. dollar-denominated debt at the end of 2018. We have reduced considerable our FX exposure for the following years.

Financial expenses were 17% lower in the year. In 2019, the premium rate paid for the redemption of the senior notes was PEN 28.1 million lower when compared to the redemption executed in 2018. Additionally, interest expenses were 17.6%, PEN 17.6 million lower due to a lower average interest rate and a lower stock of the debt in the period.

Foreign exchange registered a gain of PEN 22.2 million in 2019 versus a loss of PEN 75.2 million in 2018, explained mostly by the conversion of U.S. dollar-denominated debt to soles and a lower FX rate during the period. Taxes were PEN 178 million versus PEN 147 million in 2018, considering a higher tax base mainly in our Peruvian operations. Net profit for the year was PEN 350 million versus PEN 183 million during 2018, a significant improvement due to the factors mentioned before.

In terms of CapEx, disbursements correspond to minor projects across our subsidiaries, including work at the new mill in Ecuador and Atocomo thermal plant, the modernization of the coolers in kiln 2 at the Condorcocha plant, the acquisition of new mixer trucks for the UNICON and Skanon and overhaul of several equipment, among others.

Thank you. That will be it from my side. Now we open up for your questions.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) Our first question comes from Lucia Calvo Perez with LarrainVial.

--------------------------------------------------------------------------------

Lucia Calvo Perez, LarrainVial S.A., Research Division - Equity Analyst [2]

--------------------------------------------------------------------------------

I was wondering if you could comment us -- on an update on the situation on Ecuador and mostly how it will impact your -- the cement demand for your operations this year.

--------------------------------------------------------------------------------

Álvaro Morales Puppo, Unión Andina de Cementos S.A.A. - Financial & Corporate Development Manager [3]

--------------------------------------------------------------------------------

Thank you for your question. As we mentioned last year is, we have 12 days that we couldn't dispatch any cement of our cement plant in Ecuador because of the social problems that were there. That was around 50,000 tons that we couldn't sell because of the stop of our dispatches. And for this year, we expect that the government is not going to have again problems like that. And we are expecting to recover our dispatches around 5% from the previous year. So we expect to have a better year for Ecuador.

--------------------------------------------------------------------------------

Operator [4]

--------------------------------------------------------------------------------

(Operator Instructions) Our next question comes from Sebastián Montoya of Compass Group.

--------------------------------------------------------------------------------

Sebastián Montoya, [5]

--------------------------------------------------------------------------------

I have a quick one. Could you give us some guidance for volumes next year and EBITDA margin for the next year, please?

--------------------------------------------------------------------------------

Francisco Barúa Costa, Unión Andina de Cementos S.A.A. - Investment Manger [6]

--------------------------------------------------------------------------------

Sebastián, this is Francisco. Thank you for your question. I understand that the question is regarding guidance for next year and for EBITDA on...

--------------------------------------------------------------------------------

Sebastián Montoya, [7]

--------------------------------------------------------------------------------

Yes, by this year. Yes, around the volumes and the EBITDA.

--------------------------------------------------------------------------------

Francisco Barúa Costa, Unión Andina de Cementos S.A.A. - Investment Manger [8]

--------------------------------------------------------------------------------

For 2020, okay, all right. So we expect that this year, we will have an EBITDA of around $280 million, okay? If you would like to go through the cash flow generation, we expect interest of around $70 million, interest expenses; taxes of around $70 million. Dividends are going to remain the same. Our policies didn't change, so it should be $26 million. Our estimated CapEx for the year should be $80 million, and we expect to amortize debt for $100 million. If we comply with that, we will have plenty of cash flow to comply with all of our obligations and reduce the debt at our policy. And sorry, and debt ratio should be at around 2.8% -- 2.8x.

--------------------------------------------------------------------------------

Sebastián Montoya, [9]

--------------------------------------------------------------------------------

Okay. And about the volumes for cement this year?

--------------------------------------------------------------------------------

Francisco Barúa Costa, Unión Andina de Cementos S.A.A. - Investment Manger [10]

--------------------------------------------------------------------------------

Sorry, can you repeat that?

--------------------------------------------------------------------------------

Álvaro Morales Puppo, Unión Andina de Cementos S.A.A. - Financial & Corporate Development Manager [11]

--------------------------------------------------------------------------------

Volumes.

--------------------------------------------------------------------------------

Francisco Barúa Costa, Unión Andina de Cementos S.A.A. - Investment Manger [12]

--------------------------------------------------------------------------------

Volumes.

--------------------------------------------------------------------------------

Álvaro Morales Puppo, Unión Andina de Cementos S.A.A. - Financial & Corporate Development Manager [13]

--------------------------------------------------------------------------------

Volumes for Peru?

--------------------------------------------------------------------------------

Sebastián Montoya, [14]

--------------------------------------------------------------------------------

Yes, the volumes.

--------------------------------------------------------------------------------

Francisco Barúa Costa, Unión Andina de Cementos S.A.A. - Investment Manger [15]

--------------------------------------------------------------------------------

In terms of volumes for Peru, we expect to increase our cemented products by 2.8%.

--------------------------------------------------------------------------------

Álvaro Morales Puppo, Unión Andina de Cementos S.A.A. - Financial & Corporate Development Manager [16]

--------------------------------------------------------------------------------

Ecuador, 5%.

--------------------------------------------------------------------------------

Francisco Barúa Costa, Unión Andina de Cementos S.A.A. - Investment Manger [17]

--------------------------------------------------------------------------------

Ecuador, 5%. And the U.S. should be flat because the plant is already working at full capacity.

--------------------------------------------------------------------------------

Sebastián Montoya, [18]

--------------------------------------------------------------------------------

And a final one. What are the prices for this year? Do you expect that it's flat...

--------------------------------------------------------------------------------

Francisco Barúa Costa, Unión Andina de Cementos S.A.A. - Investment Manger [19]

--------------------------------------------------------------------------------

Pardon?

--------------------------------------------------------------------------------

Sebastián Montoya, [20]

--------------------------------------------------------------------------------

About the prices for this year?

--------------------------------------------------------------------------------

Francisco Barúa Costa, Unión Andina de Cementos S.A.A. - Investment Manger [21]

--------------------------------------------------------------------------------

Prices? Okay. In Peru, prices should be flat, okay? In Ecuador, prices, again, it should be flat. And in the U.S., price should be equal -- [a 10s number] to 110 pretty much in average.

--------------------------------------------------------------------------------

Operator [22]

--------------------------------------------------------------------------------

(Operator Instructions) We have a follow-up question from Lucia Perez of LarrainVial.

--------------------------------------------------------------------------------

Lucia Calvo Perez, LarrainVial S.A., Research Division - Equity Analyst [23]

--------------------------------------------------------------------------------

Do you think you can comment also a little bit on the ready-mix operations if the fall in volumes in the fourth quarter was also a one-off? Or what are you expecting for ready-mix this year?

--------------------------------------------------------------------------------

Álvaro Morales Puppo, Unión Andina de Cementos S.A.A. - Financial & Corporate Development Manager [24]

--------------------------------------------------------------------------------

Okay. As we mentioned in our newsletter, our revenues volumes reduced in the last quarter, but that was mainly due -- because of the social problems in Ecuador and Chile. We have different operations also in Ecuador and Chile. In terms in U.S., the U.S. increased the dispatches around 10%. And because of the social problem, Ecuador and Chile reduced around 5% volume. What we expect for this year is that in Peru, we will keep our volumes conservative. We expect to keep our volumes; but in the case of Ecuador and Chile, with no social problems, we will recover around 10% also. We are optimistic about that. In the U.S., we expect to continue the growth that really the construction sector in Arizona is performing very, very, very good. And we'll stick closer to increase our volumes in ready-mix there and prices also.

--------------------------------------------------------------------------------

Operator [25]

--------------------------------------------------------------------------------

(Operator Instructions) We have no further questions in queue in -- at this time.

--------------------------------------------------------------------------------

Álvaro Morales Puppo, Unión Andina de Cementos S.A.A. - Financial & Corporate Development Manager [26]

--------------------------------------------------------------------------------

Okay. Thank you, Kathleen, and thank you, everyone, for joining the call. Please stay in touch with us. We are going to held our -- hold our shareholder meeting at the end of the month. It will be great to see you -- all of you there, and we expect your participation. And if you have any final questions, please feel free to contact me or Monica. We are always available. Have a good day, and thank you very much for joining.

--------------------------------------------------------------------------------

Operator [27]

--------------------------------------------------------------------------------

Thank you, ladies and gentlemen. This concludes today's teleconference. You may now disconnect.