Aenza SAA (AENZ) 2021 Q3 法說會逐字稿

Good afternoon, and welcome to the Aenza Third Quarter of 2021 Earnings Conference Call. (Operator Instructions) Please note that this event is being recorded. Presenting today on behalf of the company are Gustavo Buffara, Vice Chairman; and Dennis Gray Febres, Chief Financial Officer.

I would now like to turn the conference over to Gustavo Buffara, Vice Chairman. Please go ahead, sir.

Thank you. Good afternoon to everyone attending this call. It's a pleasure to address you as Vice Chairman of Aenza for the first time. I'll proceed to present a summary of the relevant highlights of the third quarter of 2021. Afterwards, Dennis Gray, our CFO, will present the financial results of this year. We'll conclude with a Q&A session.

So ladies and gentlemen, the third quarter of the year marks a turning point in the history of our company. With IG4 becoming our largest shareholder, Aenza has undergone a series of important changes that have laid down the basis for a new growth strategy that involves expanding our capabilities across the region.

Following the execution of the (foreign language), we are working closely with the Peruvian authorities to complete the steps required to achieve the judicial approval of the plea agreement.

Regarding the class action, the New York's East District Court approved on September 14, 2021, the settlement agreement entered into by the company and the plaintiffs in July of 2020. Furthermore, in line with our financial plan, we negotiated a new payment schedule with the plaintiffs, which includes a $6.3 million payment and the payment of the remaining balance in June 2022. This will improve the liquidity of the company and aligns our schedule of payments with the financial plan.

Regarding IG4 transaction, the public tender offer process initiated by IG4, culminated successfully in August. In addition to previous agreements made with the founding family for the acquisition of the political rights of their shares, this offer [means] IG4 with the ability to vote approximately 30% of the company's share as of September 2021. As a result of the completion of the tender offer, the founding family and former executives close to them no longer have any participation or influence in the governance of Aenza.

In addition to the 30% stake, IG4 has acquired approximately $22 million of convertible bonds issued by the company. The completion of IG4 -- of the IG4 transaction, including this specific investment, made it possible to successfully issue the true $90 million in convertible bonds since it showed confidence in the company, motivating other shareholders and new investors to subscribe as well.

Furthermore, IG4 has sent a formal letter to the Board of Directors, committing to convert their bonds into common shares, thus strengthening our capital structure and facilitating new credit lines for the company. Pacifico Corp and Fratelli Investments, who hold approximately 20% of the company's shares, also declared their intention to convert their bonds.

After the public tender offer was completed, the shareholders appointed a new Board of Directors, whose diversity of members, including Peruvians, Chileans, Brazilians and Spaniards, is a sign of the company's strategic interest in international growth. The Board includes representatives of Aenza's largest shareholders in addition to 3 independent directors. This brings balance between the voting rights.

The new Board also includes a female member for the first time in the company's history. Given her considerable background in the subject, Gema Esteban will support Aenza's new focus on ESG to ensure the sustainability of the company's investments from an environmental, social and corporate governance perspective.

In addition, the Board has approved a change in its organization, which will now consist of 4 committees: the Audit and Compliance Committee, the Talent Committee, the Finance, Risk and Investment Committee and the recently created Environmental, Social and Governance Committee. The latter evidencing our commitment to the highest standards in ESG. The Audit and Compliance Committee will evaluate and monitor the effectiveness of organizational governance and internal control practices. The reliability of the compliance management processes, financial and nonfinancial reports and internal and external auditing. It is led and composed of independent members following governance market standards.

The Talent Committee will propose to the Board different matters related to the executives and help ensure that the company has adequate human capital, a healthy and productive work environment and an ideal corporate culture.

The purpose of the Finance, Risk and Investment Committee is to determine and supervise the implementation of the company's business strategy and financial structure and to oversee the corporate development projects proposed by the management. In addition, this committee submits to the Board of Directors the approval of the company's strategic guidelines and its annual budget.

The Environmental, Social and Governance Committee has the purpose of helping to ensure the long-term sustainability of the business for the benefit of different stakeholders of the company: clients, investors, suppliers, employees and society in general, attending to both the management of associated risks and the creation of value.

Changes in the organization of the Board of Directors respond to a new corporate governance structure that seeks to maximize corporate strategy. Juan Revilla Vergara is now leading the Board as the Chairman; and I will serve Vergara as the Vice Chairman.

The Board of Directors has approved the appointment of Andre Mastrobuono, an executive with demonstrated experience in turning around companies across the region in the infrastructure, oil and gas, real estate and other industries, as the CEO of Aenza. Mr. Mastrobuono has been in charge of several companies undergoing special situations, and he has successfully led their restructuring processes. He has been CEO of Urbplan; San Antonio Internacional, Santa Elisa Vale, Parmalat do Brasil and Telemig Celular.

He has also served as a General Director at Vivo and as Associate Principal at McKinsey & Company. Mr. Mastrobuono will lead his team with financial results orientation and will help build a culture of accountability within the company.

The management is currently implementing a new matrix organizational structure that seeks to strengthen its involvement in business development and facilitate its governance -- corporate governance. In this structure, the operating committees, which were governing and decision-making bodies for each business unit, has been dissolved to create a centralized structure directly linked to the CEO. Likewise, transversal corporate functions have been defined, with matrix reporting from the companies to the holding, allowing the generation of synergies, consolidating good practices and promoting the business units' development.

A new corporate position has been created within that structure that we will oversee public affairs, HR and shared services. In addition, Aenza will focus strongly on managing ESG factors, since it's our long-term to -- long goal term to turn the company into a benchmark for regional sustainability and, thus, ensure the long-term continuity of our capacity to generate value for our shareholders -- stakeholders. These changes will help the company to navigate in the coming years to deliver the new plan and vision for the group.

The new strategic goal for Aenza is to become a Latin American infrastructure development platform and implement a growth strategy that takes advantage of the existing and future opportunities in the concession market in the region, in light of its significant infrastructure deficit.

Considering the high entry barriers that the infrastructure business entails, we plan to build on top of our Aenza's leadership as an infrastructure company in Peru, expanding its business to nearby countries like Chile, Colombia and Brazil.

The other business units will be strengthened. The Real Estate business unit will seek to grow in the affordable housing sector. In the case of Engineering and Construction, we will work to consolidate its position in Chile and Colombia and continue to focus on its current niche in Peru.

Regarding the financial plan, in the short term, the company has implemented a centralized management of its cash flows, expecting to generate savings and efficiencies by strengthening corporate shared services across the business units.

Furthermore, following the successful issuance of the convertible bonds, our objective is to secure additional conversion commitments from other bondholders. Simultaneously, we are now -- we are also evaluating the diverse financing alternatives we expect to execute in the following months. Thank you.

Good afternoon, everyone. I'm going to go under a brief overview of the third quarter of 2021 results. As you have -- as many of you have seen on the consolidated quarterly report, our consolidated results for the third quarter of 2021 show an important recovery at the operating level compared to the same period in 2020. This was due mainly to the outbreak of COVID-19 pandemic last year, which affected the group's operations in many lines.

At the end of the third quarter of this year, our projects are developing in a normalized manner and always with established health safety protocols. In that sense, our infrastructure area in, again, specifically of Norvial concession, has been exceeding pre-pandemic traffic levels. And in the Energy business, we achieved an important recovery in oil and gas prices. The Engineering and Construction area increased the productivity of its projects in execution. And the Real Estate business increased the sale and delivery of low-income housing units.

In terms of revenue for the first 9 months of 2021, consolidated numbers reached PEN 2.8 billion, which is an amount 28.9% higher than the figure we reported at the end of the third quarter of 2020. In the infrastructure area, revenues at the Energy business increased due to higher oil prices, in Norvial due to higher traffic, in Line 1 due to higher additional kilometers run by our operation. And likewise, in the E&C construction sales mainly increased because of the higher production volume in projects under execution, mainly in Chile and the contract extension for the Quellaveco tunnel construction project in Peru and also the contract with Lima Airport Partners for the construction of the second runway of the Jorge Chávez Airport.

Consolidated gross profit increased 33% in the third quarter of 2021, mainly due to better margins in the Energy business and in Norvial due to higher traffic.

Administrative expenses at the end of the same quarter increased 16.9%, reaching 5% relative to the consolidated sales at the end of the same quarter. The increase in general expenses was mainly due to Vial y Vives-DSD and Morelco. In the third quarter of 2020, the comparative base was lower due to the suspension of projects due to pandemic.

Other income and expenses in the same period include the sale of machinery and administrative sanctions, which includes the impairment of the investment in Vesur for $13.6 million (sic) [PEN 13.6 million], an increase in the provision for the civil penalty within the pre-agreement for PEN 9.6 million. As a result, the operating income increased compared to the third -- the same period last year with a margin of 4.7% compared to 2.5% in 2020.

In the first 9 months of this year, the net financial expenses increased 82.6%...

Pardon me, ladies and gentlemen. It appears that we have lost connection to our speaker line. Please stand by as we reconnect. We thank you for your patience.

Pardon me, ladies and gentlemen. It appears we have reconnected our speaker line. Mr. Gray, you may proceed.

Pardon me, ladies and gentlemen. It looks like our speaker line is actually disconnected again. I apologize for the inconvenience. Please continue to hold.

Pardon me, ladies and gentlemen. It appears we have reconnected our speaker line. Mr. Gray, you may proceed.

Thank you, Matt. First of all, apologies for the unexpected technological situation.

Let me resume where I believe I stopped the call. I was talking about the net financial expenses reported for the third quarter of this year, which increased significantly, 82.6%. This was mainly explained by several registries in our accounting: basically, the restatement of the present value of the accounts receivable we have with the Gasoducto Sur Peruano project; the accrued interest provisions related to the loss of a claim to the tax administration authority in relation to the 2013 income tax audit in Cumbra; the interest corresponding to incremental debt, mainly Cumbra Peru with Banco Santander, which resulted to the -- from the execution of surety bonds in December of 2020; and the interest related to the convertible bond that was issued in August.

It's important to mention also that the dollar at the end of the third quarter of 2021 went from PEN 3.5 per dollar to PEN 4.1 per dollar. Considering the net position of assets and liabilities in dollars the company on the whole has, there is an important impact on the exchange difference.

Finally, the consolidated net loss of the company in the third quarter of 2021 amounted to PEN 104 million. The net margin went from minus 2.5% in the third quarter of 2020 to minus 3.6% in the third quarter of this year, which was explained by the results described above. Adjusted EBITDA, on the other hand, increased in the first 9 months of this year compared to the same period in 2020, going from PEN 306 million to PEN 347 million this year.

Relating -- with regards to backlog, the third quarter of this year was very relevant for our operation on the E&C business segment, in which Cumbra Peru was awarded with a contract with Lima Airport Partners for the design, engineering, supply and construction of the new terminal at the Jorge Chávez International Airport, a contract that amounts for approximately $700 million. This contract is in a joint venture with Sacyr, a joint venture in which Cumbra has a 49% participation. Also, Vial y Vives was awarded with a contract with Mina Spence for $50 million.

With this, it has been mentioned, the consolidated backlog reached $1.37 billion, plus the recurrent businesses of $603 million, which combined amount to a total backlog of $1.98 billion at the end of the third quarter of 2021. This number represents a ratio of backlog plus recurrent businesses over revenues of 2 years.

In the infrastructure area, the increase of recurrent businesses is mainly due to the updated sales estimates for the Energy businesses with -- or considering the new oil price.

Regarding indebtedness, the consolidated financial debt reached $479 million at the end of September of 2021. Indebtedness at the end of this period has decreased by 5.3% compared to the end of 2020. This is mainly due to amortization of our infrastructure, financing month and also the amortization of working capital debt in the Real Estate business.

Of the total financial debt, $92 million corresponds to working capital associated to clients' operations and also leasing for the acquisition of machinery and equipment. The amount of $247 million corresponds to Infrastructure Project Finance. On the other hand, $89 million are related to the convertible bond that was issued in August of 2021. Finally, $41 million corresponds to debt from dividend monetization at Norvial level and the debt with CS Infrastructure -- Peru Infrastructure Holdings was amortized among the uses of the convertible bond.

Thank you for your attention. We can start with the Q&A session.

(Operator Instructions) As there are no questions, this concludes our question-and-answer session, which also concludes today's conference. Thank you for attending today's presentation. You may now disconnect.