Aenza S.A.A. (AENZ) on Q3 2023 Results - Earnings Call Transcript
Operator: Good afternoon, and welcome to the Aenza's Third Quarter of 2023 Earnings Conference Call. [Operator Instructions] Please note that this event is being recorded. Presenting today on behalf of the company are Andre Mastrobuono, CEO; and Cristian Restrepo, Vice President of Corporate Finance. I would like to turn the conference over to Andre Mastrobuono, CEO. Please go ahead, sir.
Andre Mastrobuono: Good morning, and thank you for joining us on this earnings call. I will provide a brief overview of the significant events of the past few months. Following my remarks, Cristian Restrepo, our new Vice President of Corporate Finance, will present the results for the third quarter of the year. And at the end of the presentation, we will have a moment to answer your questions. Renzo Temoche, our VP of Corporate Control and Financial Planning, will join us for Q&A session. The recent months have been a transformative period for Aenza. We have not only closed a significant legal chapter, but we also announced a decisive strategic measure that reflects our long-term vision and our commitment to growth and sustainability with the goal of becoming a leading infrastructure management platform in our region. On Slide 4, on the plea bargain agreement, in a significant milestone for the company, on August 22, we were notified with the court's approval of the final agreement on settlement and cooperation signed between Aenza and its subsidiaries, Cumbra Peru and UNNA Transporte, the Ad Hoc Public Prosecutor's Office and the Peruvian Public Ministry. The terms of the agreement will become effective once the resolution is consented to following the normal procedures for judicial resolutions. New construction contracts. This past August, our subsidiary, Cumbra Peru and Strip Centers Del Peru S.A.C., a subsidiary of Grupo Parque Arauco, signed a construction contract for the Centro Commercial Parque La Molina. The project with a roof area of 58,000 square meters located at Avenida La Universidad in the La Molina district is valued at approximately PEN 118 million plus sales tax, with an execution period of 14 months. The project reaffirms Cumbra's capability in the building sector. Bridge loan on Slide 4. In October, we are pleased to announce the extension of the bridge loan agreement, which will be repaid over a period of 12 months, providing us a bridge until a long-term facility solution takes place. Capital increase. During the general shareholders' meeting held on October 24, a capital increase of PEN 22.5 million were approved. The proceeds of the capital increase are earmarked for the payment of the financial obligation and strengthening of Aenza's equity. Furthermore, on October 26, the Board approved the terms and conditions for this capital increase. This not only shows the strong confidence in Aenza's strategy but also support us financially to carry out our strategic vision. Corporate reorganization plan on Slide 6, aligned to our vision of leading the infrastructure development in Latin America, the Board has approved a corporate reorganization plan for Aenza this past October, which involves the creation of a renewed organization structure that groups the company's business according to their nature, capability and risks. The new structure of Aenza will be formed by two new holding companies. We -- one, sorry, consolidating our Infrastructure and Energy operations and the other, our engineering and construction business. Viva will continue as the real estate development vehicle. A general shareholders' meeting was convened for December 13, 2023, to approve this reorganization and the studies for the next steps of this process, which could consist of several alternatives, including the spin-off of some of the businesses. New York Stock Exchange list. After careful consideration, the Board approved the intention to de-list Aenza securities from the New York Stock Exchange, terminate our SEC registration and conclude our American Depository Shareholders Program, ADS. This decision is aligned with the optimization of our resources given the ADR's low liquidity and the high cost associated with the listing. We will continue to trade on the Lima Stock Exchange. We are filling our commitment to our local and regional markets. This strategic move allows us to allocate resources more efficiently towards our growth and leadership in the region. The process for de-listing, de-registration from the SEC and the termination of the ADS program has not been initiated, since this process requires compliance with certain requirements. We cannot provide assurance as to when the process will be completed. New ESG score on Slide 8. Aenza, you can see Aenza has accomplished a commendable 16 increase from the previous year in S&P Global Corporate Sustainability Assessment, CSA score. The CSA is an annual evaluation of sustainability practice that covers over 10,000 companies globally. The official results as October 2023 show that the company has reached a significant milestone with 43 points. This score marks a positive trajectory over the last three years, starting with 23 points in 2021, improving to 37 points in 2022 and now solidifying this progress with a score of 43 points. This substantial increase highlights our dedication as well as our robust approach to incorporating ESG factors into our business strategy, decision-making progress and operational practices. Acknowledgment and social impact initiatives. On Slide 9, Aenza and our subsidiary, Viva, has been distinguished with an AB certification from Peruvian Association of Good Employers. The certification endorsement by the American Chamber of Commerce of Peru, recognizes organizations that excel in fostering a work environment characterized by safety, respect, inclusivity and the generation of opportunities for the employee growth. It's granted to those companies that consistently adhere to stringent standards of good labor practices. In addition, our UNNA infrastructure business unit initiatives, [Mas Bocades] and Transporters was honored with the second place in the women category of the GRI Infrastructure Awards Andean 2023. This recognition serves as a reflection of our efforts to close the gender gap and empowerment of women. Notably, this initiative has successfully doubled the female representation into the workforce of Línea 1 del Metro de Lima and has enhanced the economic and social empowerment over 500 women, bolstering their ability to undertake the new entrepreneurial ventures. In conclusion, the progress we have made this past quarter reinforces our role as a leader in infrastructure management and development. Today, our operations already set industry benchmarks, and we are working to create substantial value that positively impacts our shareholders, from local communities to global partners. As we look ahead, our focus is to build upon our established strengths further to reinforce our leadership position. I will now turn it over to Cristian Restrepo to provide more details on our financials. Thank you again for your attention.
Cristian Restrepo: Thanks, Andre. We'll see now the results of Aenza third quarter 2023. On Slide 11, consolidated revenues reached PEN 3.1 billion, 1.4% lower than the figure reported at the end of the third quarter 2022. In the energy area, revenues increased due to higher oil production in the upstream business. Likewise, in the infrastructure area, the increase is mainly explained by higher maintenance of execution in survival and higher revenues from tariff indexation in Line 1. Additionally, the real estate reported an increase in revenues due to higher value of social housing units delivered and a sales of land in Almonte for PEN 24 million. This was offset by lower production volume in projects under execution in the Engineering and Construction area, mainly in Cumbra Peru for the Quellaveco project and Vial and Vives DSD for the MAPA project, which ended in 2022. Additionally, Norvial reported lower traffic and execution of complementary works. Regarding gross profit, consolidated gross profit increased 36.1% compared to third quarter 2022, mainly due to engineering and construction area as a result of higher profit recorded in Cumbra Peru in the project lab for the construction of the new Jorge Chávez airport terminal and in Morelco for the Santa Monica project with Ecopetrol. Additionally, Viva recorded higher sales volumes of homes delivered in the Los Parques de Comas project and a higher margin related to the sale of lots in Almonte. The aforementioned was partially offset by UNNA Energía related to higher depreciation and amortization of the wheel drill in Blocks 3 and 4 during 2023 and by Norvial due to lower execution of complementary works and lower traffic. On operating income, administrative expenses increased by 5.9% in third quarter 2023, reaching 5% of sales compared to the 4.7% of sales at the end of third quarter 2022. The main increase resulted in the real estate business due to higher transaction costs for the sales of lots in Almonte. Regarding other operating income and expenses, third quarter 2023 registered the adjustment of provision for the INDECOPI signed in Cumbra for PEN 4 million due to the update of the tax unit and tax contingencies of Cumbra Peru for PEN 3 million, offset by income in holding related to the refund of our insurance policy and the recovery of provisions. Other operating expenses at the end of the third quarter 2022 include mainly the pre-agreement provision. In accordance with accounting standards in previous quarters, it was recorded at a discounted value. This registration is in line with the signing of the final agreement between the company, the Attorney General's office and the Public Minister in September 2022. Likewise, the total provision has been recorded in Aenza home. As a result, operating income increased in third quarter 2023 with a margin of 11.4%. On financial expenses, in third quarter 2023, net financial expenses decreased by 45.1%, mainly due to the interest payments related to the convertible bond in 2022. Dollar exchange rate went from PEN 3.984 per dollar in third quarter 2022 to PEN 3.797 per dollar in third quarter 2023. Considering the net position of assets and liabilities in dollars and negative impact on exchange rate, difference was generated. Consolidated net income in third quarter 2023 was PEN 33 million, which represents a net profit margin of 1.1%. Adjusted EBITDA increased by 41.3% compared to the same period of 2022, increasing from PEN 413 million to PEN 583 million. On Slide 16, consolidated backlog amounted $2 billion, of which $921 million corresponds to recurring business, that is oil and gas segment and the Norvial concession. This figure represents a ratio of total backlog revenues of almost 1.7 years. During third quarter 2023, our subsidiary, Cumbra and Strip Center Des Peru, a subsidiary of Grupo Parque Arauco, signed a construction contract for PEN 118 million plus sales taxes for the construction of the new Parque La Molina shopping center. The contract has an execution and execution term of 14 months. On left side, on Slide 18, consolidated financial liabilities at the end of third quarter 2023 are $470 million. Breakdown are as follows. $33.3 million corresponds to working capital associated to clients' account receivables and leasings for the acquisition of machinery and equipment. $247 million corresponds to infrastructure project finance. $8 million corresponds to debt driven from performance bonds granted to secure Concessionaire Chavimochic obligations under the concession contract, which was executed by the Peruvian State by nature of the arbitration ruling issued in October 2022, which declared the caducity of the concession. $124 million corresponds to the bridge loan disbursed in April 2022. $40.9 million correspond to the sale of 48.88% of the shares of Norvial according to the International Financial Reporting Standards Committee. This operation includes the transfer of political rights to Aenza with an option to repurchase the shares. Finally, $16.8 million correspond to leases according to International Financial Reporting Standards 16. Thank you very much for your attention. We can start now with the Q&A session.
Operator: [Operator Instructions] Showing no questions, this concludes our question-and-answer session as well as our conference for today. Thank you for attending today's presentation. You may now disconnect.
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