Aenza SAA (AENZ) 2013 Q4 法說會逐字稿

Good morning, and welcome to Grupo Grana y Montero's fourth quarter and full-year 2013 conference call. All lines have been placed on mute to prevent any background noise. After the presentation, we will open the floor for questions. At that time instructions will be given as to the procedure to follow if you would like to ask a question.

It is now my pleasure to turn the call over to Rafael Borja of i-advize Corporate Communications. Sir, you may begin.

Thank you, Chantal, and good morning everyone. I'm very pleased to welcome you to Grupo Grana y Montero's fourth quarter and full-year 2013 conference call on this day, 11th of February, 2014.

This morning the senior management team of Grupo Grana y Montero will discuss the Company's fourth quarter and full-year 2013 consolidated results per the press release distributed on Friday, January 31st. For a copy of the earnings release and more information available on the Company, we ask that you visit the Company's website at www.granaymontero.com.pe in the Investor Relations section, where there is also a webcast presentation to accompany the discussion during this call.

This call is for investors and analysts only; therefore, questions from the media will not be taken.

I will now introduce our speakers, and joining us from Lima, Peru, are Mr. Mario Alvarado Pflucker, Chief Executive Officer; Mrs. Monica Miloslavich Hart, Chief Financial Officer; Mr. Juan Manuel Lambarri, Chief Executive Officer of Engineering and Construction Area; Mr. Luis Diaz, Chief Executive Officer of Infrastructure Area; and Mr. Dennis Gray Febres, Corporate Finance and Investor Relations Officer.

During this call, management comments may include forward-looking statements, which are cited to various conditions that may differ materially. We ask that you refer to the disclaimer as guidance on these matters.

It is now my pleasure to introduce Mr. Mario Alvarado Pflucker, Chief Executive Officer of Grupo Grana y Montero, for his presentation. Mr. Alvarado, please go ahead.

Thank you very much. Good morning everyone and welcome to Grana y Montero's conference call for the fourth quarter and full year 2013. As Rafael mentioned, we here are six of the executives of the Group. We are going to do -- I'm going to do the highlights, then Monica will do a summary of the financial numbers and then a conclusion and we are here to [answer] any questions that you may have.

Let me start by reviewing the main highlights of this last quarter. First talking about macro-environment, the gross domestic product growth of 2013 estimated consensus is for 5.1% for the country. The growth has been in the last year, but still is a very good number relative to other countries.

What's interesting in this fourth quarter is that business confidence index has increased in December for the fourth consecutive month, because after -- we had a low period in September.

Now about concessions that are a very important part of our business, as we discussed in the last year, they were becoming slower than we expect or lower than we wanted. But the remedy is we are trying now to put the concessions and they have the program, they have committed to execute or to beat $11.6 billion this year for 2014.

Now about the backlog, the backlog at the end of the year is still very strong, is 1.94 times revenues. If compared to the industry it's a very, very high backlog. The most important additions to our backlog has been, one, that is Chavimochic. It's an investment of $700 million of 26 onwards -- 26.5% is our participation in that consortium. It represents to us $140 million in our backlog.

The second is Via Expresa Sur. It's an investment of $200 million. It's 100% participation Grana y Montero, and represents $93 million on the backlog, because that's a part of that conception contract. The remaining parts are [XOPs] and other costs. That also is going well as predicted.

Then we are also at the second stage of Norvial, a concession that we have on in the north of Peru. It is $83 million contract where we have 67% participation. Those are the main additions to the backlog.

In terms of the infrastructure projects under development, what is very important is that the most important one that we are following today is Via Expresa Javier Prado. It has been already approved by the board of the municipality. Now, it's in the next stage.

It is going to Contraloria -- that is the entity that supervises all the contracts that all the entities of the country have -- and also to -- for approval to the minister of economy. We expect in the next 2-3 months for that to be finished.

And also that the other project, Cuartel San Martin, we already have a technical approval and have to go to the board of the municipality to approve the roads or the highway that goes to the project.

Now, I will comment you about two very important issues. One is about our participation in the infrastructure project TgP, that is Transportadora de Gas del. We are -- as you may know, we were a very small partner there. At the same time, we had an agreement with CPPIB, that is a very important pension company in Canada. It was an agreement to work together to develop some very important projects.

What has happened is that once one of the partners of TgP put their shares at sell, we have the right to buy them and we secured that price with the financing from CPPIB. And then later we passed all that participation to CPPIB. Now, as other partners of TgP have also put their shares to -- in the market, we are thinking with financial partners to do the same. We are evaluating; we are not yet decided. And we are not going to take a bigger portion. We will keep to ourself with a very small percentage in the same way that we have done.

Also very important, the project that is coming, the Metro Lima Dos. That is a big project in history that is going to come in Peru of $6 billion project. There are three consortiums pre-qualify, and we have changed a little bit of our consortium. We have increased the amount of partners. Today we are four partners in the consortium. And that project was to be delivered by the end of this month, but there is a possibility that it will take a few weeks more on that.

Now, I would like to turn to Monica Miloslavich to -- the Chief Financial Officer of the Group, to review the financial highlights. Monica, please go ahead.

Thank you, Mario. At this point I will briefly review the financials before proceeding to the Q-and-A session. Let's turn to page 6 of the presentation. Revenue growth is explained mainly by the increase in revenues in the E&C segment particularly in contract mining services and civil works division, and to a lesser extent to the revenues reported in Vial y Vives and DSD, the recent acquisitions in Chile.

Additionally more units were delivered in the real estate projects during this period. The Line 1 of the Lima Metro reported more revenues due to more trains under operations since July 2013. And finally, an increase in revenues in the maintenance of regional growth of the technical service segment.

In the E&C segment, the gross profit increased due to better margins in the contract mining projects, higher margins in the units delivered in the real estate projects, and in the technical service segment due to better results in the IT business and better margins reported in electrical service business as a consequence of profit improvements implemented during previous year.

On the other hand, in the infrastructure segment gross profit was affected by lower production in the gas plant and lower results in the Line 1 of Lima Metro due to the delay in the start of operations of the new trains.

The net income has increased 10.3% in spite of the impact of exchange losses in the period. The EBITDA -- the better results in the EBITDA are explained by higher operating results as a result of better gross profits and margin.

In terms of participation of each of the segments in revenues and EBITDA, the proportions remain very similar to previous year's. Only in the case of net income the participation of infrastructure has reduced from 22% at the end of 2012 to 18.5% at the end of 2013, mainly explained by the impact of exchange losses.

There's also page 7, the year ended with a total amount of backlog of $3.9 billion that represents a ratio of backlog/revenue of 1.94. From the total amount of backlog $1.9 billion is going to be delivered in 2014, which represents a strong backlog for this year. Looking forward, our commercial effort will be focused on increasing backlog for 2015 and beyond, as the backlog for 2015 at this stage is not as strong as it was 3 years ahead in 2012.

Adding to the backlog, the total amount of recurrent businesses for the next 3 years is $403 million, from which $142 million is going to be delivered during 2014. Most of the new contracts awarded during the year have been in the E&C segment; therefore, the participation of E&C in the backlog has increased from 68% at the end of 2012 to 75%.

The main contracts awarded during the year were the expansion of Cerro Verde's Concentration Plant, Pelambres mine in Chile for [Via Livirez], the natural gas compression plant construction contract with TgP, the expansion of Via Expresa Sur, the second lane of Norvial road and Chavimochic irrigation project among others.

Of the total amount of backlog, 19% is mining projects and 32% contract mining projects. Electricity and transport sectors each represent 16%.

In terms of clients, 86% is with the private sector, with a reduction in percentage of foreign backlog from 24% at the end of 2012 to 20% due to more contracts awarded in Peru.

In page number 8, with the equity rate of last July the Company is in a good position to commit investments over the next 4 years. Some examples are the contracts awarded during 2013 like the Expresa Sur or Chavimochic irrigation project, plus a big pipeline of other infrastructure projects under evaluation phase.

For the year, in infrastructure segment the CapEx is related to the purchase of the new trains for Line 1 of the Metro; in E&C segment includes the acquisition of DSD in Chile, plus new machinery and equipment; and in real estate the land for future development most of which are for low income housing. Finally, other investments include the increase of 16.9% participation in Norvial and 1.04% in TgP.

Page 9, the reduction of the debt from 2012 to 2013 is explained mainly by the cancellation of the syndicate loan of $150 million issued at the beginning of 2013. With this level of debt the ratio of financial gross debt to EBITDA reached 0.77 or negative 0.16 if net debt is considered, both lower than in 2012.

Most of the debt is in dollars, which is related to the currency of the revenues and the assets associated to the debt.

Now, I will turn the presentation to Mario for final comments.

As you may see, 2013 has been a good year as expected when we had been explaining in the past. Now the big challenge from the next month is going to be -- to be able to win the big concessions projects that are coming not only in Peru, but also in Colombia, and also we have to be -- to carefully monitor the number for 2015 and beyond and be very strong in the commercial activity on that.

And now I would like to go over to the question-and-answer section.

Operator, please proceed to our Q&A session.

Thank you very much. Ladies and gentlemen, at this time we would like to open the floor for questions. (Operator Instructions).

Dario Valdizan, BTG Pactual.

And congratulations for the results. I just had a couple of questions. Mario, you were finishing talking a little bit about the challenges and opportunities perhaps for 2014. If you could broaden a little bit and go about for example in Columbia. I know you pre-qualify for the Prosperidad Highway and you've been looking at road projects.

I was just wondering what other ways are you looking to play in Colombia and a little bit more about the infrastructure challenges in Peru for construction and mining? That will be one my questions. I don't know if you want me to go over the other two or you rather just answer and then I will proceed with the other questions. How would you like to do that?

I will prefer to answer the first one and then give you --

Perfect.

Now for 2014 in Colombia, we have qualified in what is Pacifico Dos and also in the second stage of the other one, in another -- okay. Do you know how it works in Columbia? It's very strange. Because the way it works is that, first you have a raffle and then you are selected 10 in possibility consortiums. If you are not selected you become a possible partner to the other ones.

So it is important to be selected, but also it's very important to be involved in those projects that you are not selected that you -- you have a possibility to participate because they will need partners for that.

Now the question there -- and that's the balance that you have to do -- is the amount of investment that you have to do for the bidding process, because you cannot -- we cannot bid and most of the companies cannot bid all these projects in a short time. So that's the process in where we are being -- because we've been very selective on the partners and the ones that we are going to bid. And I cannot explain you in more detail on that, okay.

Now your question was also about the concessions coming in Peru. In Peru, yes, we believe that even though well, last year, if you remember, we mentioned that Line 2 was going to take longer than this -- then the government predicted it was at the end of the year. We believed it was going to be the first quarter, maybe the first semester.

Now they are very close. Now we're only three [consortiums] at -- running now. So that has increased the possibility. At the beginning we were more. (Inaudible) product mix big process on that is very expensive and we believe we are going to have a good proposal. But it's not only depending on us having a good proposal but the others also, not being such an aggressive proposal.

It seems that we are very close to the ending, but it is going to be, according to the government in February, we believe it's going to take maybe 1 or 2 more weeks, okay, because [Damaco] are asking for more time because it's some details and things that are difficult.

Now besides that, we are feeling especially in the infrastructure and that type of business as the market is having a lot of movement, a lot of activities, okay. So it's going to be a very interesting year to follow, to see how much impact we are going to have for 2015 and 2016 due to those projects. And the first 6 months are key in this aspect. I don't know if I answered your question.

Yes, that's perfect. I was concerned about -- a little bit about the Line 2 of the Metro. As you know there were some articles coming up over the week in the Peruvian press led by a potential candidate who used to be a minister during the time of Toledo, criticizing the amount of investment for the Metro Line 2, and I was wondering if that will push to perhaps some political delays as we are in a very political climate in Peru.

My other question was in November when you guys released the announcement about the MoU with the Canadian Pension Plan Investment Board, you mentioned in that press release that you will have or you are expected to have more definitive terms in 60 days.

I was wondering if you have after this transaction with TgP you have reached those definitive terms and if you could give us more details, for example, regarding how long that MoU, what type of investments, projects can be included, investment amounts that will be considered for these kinds of projects. I don't know if you have any update for us regarding that MoU?

Okay. Our MoU with CPP is to start developing big projects, not medium size. And for that we are going to do and we are having a list for it that are above $1 billion projects, okay. And for that we have at least the projects that we are following together. What it has done is that we have -- it includes the size of the project that we are going to be looking because of this consortium. That will take time. And we are going to focus mainly -- it's most probably that we are going to be in the energy, where the big projects are, okay.

Now, the second thing about that is that we already help them to buy a percentage of TgP, okay, and that -- the other part of the agreement is that they will [vote] or help us to take more jobs where they are partners, okay, and they will give us a preference. So for that they will have to get involved into the managing part of TgP. That will take a little bit long time, okay.

Now besides that, they are going to be more sells and buys in TgP and they are going to be very active. So we'll wait in the next couple of months to see how that shareholders proportion is going to be in there, to see how much opportunities we have there.

Perfect. Thank you very much for your time. I don't want to take more time from other people. I'm sure they have a lot of questions. Thank you for the results again. Take care. Thank you.

Paul Figueroa, Scotia Bank.

You were mentioning about that you have prequalified for the second line of the Lima Metro. Could you please give us what your interest or stake in this participation, in this consortium, given that you are participating with several Brazilian companies? That's my first question.

And my second question is, in the engineering and construction division you posted a 0.5% year-over-year growth in the last quarter. We were expecting a much bigger number. We understand that partial effect was given that Vial Y Vives was full consolidated already.

But our main concern basically is that in this -- given a lower mining activity, why -- because we were expecting more like a 20% growth and you were posting only a 0.5% growth year-over-year. That's my two questions. Thank you very much.

Okay. About the first question, unfortunately, I cannot answer it. You'll have to make your mark and you'll have to -- you have to wait for the (inaudible). We have an agreement not to show them that, okay. And every consortium is doing the same, okay. At this stage especially it's very delicate. And --

Answering the second question in the E&C segment, you mentioned that in your model you consolidated Vial Y Vives as it was. All the projects that Vial Y Vives has were 100% consolidated. And maybe that's one of the main reasons why during the last quarter the growth that you do have is lower.

But you have to remember that it's important to see the whole business as a whole year, not only in terms of quarters. And if you see the growth only for that segment, engineering and construction, year-to-year, it has grown 15.6%.

Now what happened during the last quarter maybe it's a matter of what you're considering as a 100% owned by the Company or not. And in that part, maybe in another call, I will explain it to you in more detail so that you can modify your projections.

Okay, thank you.

Okay.

(Operator Instructions).

Javier Martinez, Morgan Stanley.

Mario, I would like to ask you a little bit the logic behind the organizational structural change that you just announced. I saw that you changed Luis for [Renaldo]. I don't see any more Gonzalo Ferraro. But the rest seems to be similar or I'm missing anything? Maybe you put an international director for engineering. What's the logic behind -- why are you changing the structure of the Company now?

Actually we are not changing the structure of the Company. The main group of change are in the E&C area. As you know, Juan Manuel Lambarri was the -- has two roles. He was the General Manager of the whole E&C sector and GyM. While we have -- we consider growing and we are adding companies it's for him just to be the CEO of the engineering and construction group. And we have a name, general manager of GyM, that is the most important part of the Group, the Group now already five companies.

Now, for that -- because of that change, we have many changes. Because of the new manager is coming from the divisions we changed the manager for that division. It's a chain of changes because of that, okay. So it's actually not a change in the structure, but more focus on the type of work that he has done.

In terms of infrastructure, what we have done is that Luis Diaz, who was also having two jobs, as we mentioned last year. He was in charge -- the CEO of infrastructure and also the General Manager of GMC, while we wait for the right candidate.

When we found Renaldo, then we just named Renaldo and Luis. And Renaldo is the person who is reporting to Luis and he's conducting that. And because of the amount of work that we foresee in the infrastructure area is that we have put Luis with Gonzalo Ferraro. And Gonzalo is President of that area, is Executive, and his main focus is on the commercial part and the development of the business. Because we have, as I mentioned, too many projects coming, so we decided to put more management in that area. Those are the main changes.

And also -- no, the same idea is happening with the technical services. You remember [Pindo Rodriguez] was having two responsibilities. He was Investment Manager of the Group and also the CEO of the technical services. Now [Hymid Azvalen] that is coming from GMD is taking that job over, and we have named [Jorge] Gonzalez that has been working with us in GyM for 19 years as our General Manager.

So what we have done is consolidate the organization that we have announced a few years ago.

And this position, Mario, of international director of engineering and construction, this was already there or its new?

No, it is new. The idea is that, as you know, we are increasing in the size every day of the international construction, engineering and construction. Today we are having two companies in Chile. That also creates a -- you need more time because just to have one is difficult. To have two and then to start the merging and creating synergies is not as easy as it seems.

And it seems that this is going to be again a very good year in Chile in this segment. At the same time, as you know, we are starting a very strong leap for many years in the Colombian market, and we have some opportunities that we are looking and the idea of it -- the idea is to do that also. And he will report directly to Juan Manuel Lambarri. And he was previously Divisional Manager of the electrical mechanical segment. That is the one that is most active in Chile and Colombia.

Understood. So still Lambarri is the Head of the Engineering and Construction?

Correct. Yes.

Thank you very much.

Omar Avellaneda, Credicorp Capital.

I have two questions. The first one is regarding Cuartel San Martin. I was wondering if you can tell us when you are going to start the construction of that project? And the second question is about the CapEx guidance for the 2014 year.

Okay, the first question is Cuartel San Martin. Cuartel San Martin has been -- as you may know, many projects in Lima delayed because of the approval of municipalities. I don't know how many traffic has started. And they have studied all the possible alternatives and at the end they have decided that -- technically speaking (inaudible) was right, and now that are sending that to reapprove by the [Conseco], that is the board from the municipality. We cannot foresee when they are going to approve that. We hope it is in the next month.

Once we have that, we have to go to the municipality [of] projects for approval and then we'll start building it. It has been -- it has taken longer than we thought.

Okay. So that may take a while.

And the second question was guidance of CapEx of this year.

Yes.

Yes, the CapEx is one of the key element that we are following. We believe that we are going to increase the size of that CapEx in a very important part of the year. We'll try to get to $400 million. But what is important here is that some projects that we are going to be committed are committed for more than 1 year. So it's very important for us -- for you, especially if you are an analyst to understand when we have a CapEx for 1 year, not to understand what happens that year alone, but what have we committed because of that for the next years.

So it sometimes seems that we are not investing as much as we predicted. But for example, if we have to do and find the projects (inaudible), even though the CapEx is not going to very strong in this year that we will commit a big CapEx for the next year. So we have to be prepared for that. The same with backlog that you have to look third year; the same with the CapEx. We will develop some information about how much it is committed for the next years.

Okay. Thank you very much.

(Operator Instructions). Well, at this time we have no further questions in the queue. So I would like to turn this call back over to Mr. Alvarado.

Well, I would like to thank everybody for joining us in the Company. At this point we would like to say that the Company is doing okay as predicted. And if you have any more questions about -- or detailed questions, you can contact Dennis or Monica Miloslavich. Thank you very much. Have a good day.

Thank you very much. Ladies and gentlemen, this conference has now concluded. You may disconnect your phone lines and have a great rest of the week. Thank you.