Aenza S.A.A. (NYSE:AENZ) Q3 2022 Results Conference Call November 16, 2022 12:00 PM ET
Company Participants
Andre Mastrobuono – CEO
Oscar Pando – Vice President of Corporate Control and Planning
Freddie Chalco – VP of Corporate Finance
Operator
Good afternoon, and welcome to the Aenza’s Third Quarter of 2022 Earnings Conference Call. [Operator Instructions] Please note that this event is being recorded. Presenting today on behalf of the company are Andre Mastrobuono, CEO; Oscar Pando, Vice President of Corporate Control and Planning; and Freddie Chalco, VP of Corporate Finance.
I would now like to turn the conference over to Andre Mastrobuono, CEO. Please go ahead, sir.
Andre Mastrobuono
Good afternoon, and thank you for being here today. In this earnings call, I will present the highlights of the third quarter of 2022. Afterwards, Oscar Pando of Corporate Control and Planning will present the consolidated results for the same period. And at the end of the presentation, we will have a moment to answer your questions. Freddie Chalco, Vice President of Corporate Finance, will join us for the Q&A session.
During the third quarter of the year, our projects and operations have developed normally without significant effects related to the pandemic and complying with the highest environment, social and corporate governance standards. On the business units, the infrastructure business unit, our Norvial concession exceeded prepandemic traffic levels and the line 1 of the Lima Metro is now operating at 100% capacity.
In the Energy business, unit began — we began the first drilling campaign for the Block III this June, and the real estate business increased the sales of industrial lots. Finally, the Engineering and Construction units increased the production volume of its project and also has announced the signing of 2 new contracts. The first 1 announced in August is a project with Compania Minera Buenaventura in Peru, valued at $86.9 million with an execution period of 21 month. The second contract announced in October is with Ecopetrol, the leading energy and hydrocarbon company in Colombia for approximately $230 million with an execution period of 22 months. These new contracts show the market’s confidence in our experience and technical capacity to execute complex projects.
On the plea bargain agreement, representing a crucial step in the company’s recovery process on last September 15, Aenza singed the final agreement on settlement in cooperation with the ad hoc Public Prosecutor Office and the Attorney General office. Likewise, on September 29, the plea agreement was filed before the judge requesting Judicial approval. Aenza agrees to pay civil compensation to the Peruvian government in the amount of approximately PEN 480 million, subject to the conditions set forth in the agreement. The signing of this agreement and the uncertainty generated by some of the company’s legal process and allow us to focus on achieving our vision of becoming a leading player in the region.
On the organizational structure, [Daniel Urbina], we announced the resignation of Mr. Daniel Urbina as Chief Legal Officer of the company, which became effective on October 1. Daniel’s contribution to the transformation of the company has been significant. The company’s Board and management appreciates his dedication and professionalism and wish him the professionals and wish him the best for the future. A replacement for the Chief Legal Officer position will be announced in the coming weeks.
On the ESG aspect on October 21, our company’s score stood at 7 out of 100 points in the 22 S&P Global Corporate Sustainability Assessment, reflecting an improvement of more than 60% over the last year’s score. This result shows our commitment to managing the ESG factors transparently and in line with our business objectives to ensure the generation of a long-term value for all stakeholders.
Final message. Continue working to strengthen our business units while maximizing our positive economical, social and environmental impact. Additionally, we are now working on the analysis of various alternatives to refinance existing indebtedness and to finance CapEx. Thank you.
Oscar Pando
Thank you , Andre. Results for third quarter 2022, revenues. Consolidated revenues at the end of third quarter 2022 reached PEN 3.2 billion, 16% higher than figures reported at the same period of 2021. The increase is due to higher oil prices, liquefied petroleum gas and compressed natural gas that affects our Energy business unit and due to higher profit and tariff indexation in Norvial and Line 1, respectively.
Engineering and Construction business unit, the increase in sales is due to higher production volume in our — and airport terminal for the Jorge Chavez International Airport in Lima.
Gross profit, consolidated gross profit increased 11.4% in third quarter 2022 compared to the same period of 2021 due to higher oil and gas prices as well as better margins in Norvial and Line 1 as a result of traffic increase and tariff indexation mentioned before.
Gross margin was lower in third quarter 2022 compared to that of 2021, 9.9% and 10.3%, respectively. Gross margin is affected by lower margins in MAPA project in Chile as a result of lower productivity and a provision of $11.2 million as a result of a court decision that [deterred] and funded our claim for — of the arbitration ruling filed by Cumbra against EGEMSA in relation to the Machupichu Hydroelectric Power Plant project executed on [2020] to 2014.
Operating income, expenses decreased by 13.4% in third quarter 2022 compared to that of 2021, reaching 3-point percent of sales, 4-point percent of sales in 2021. These figures are the result of several organization processes implemented during 2021.
Regarding other operating expenses, on September 15, the company signed the final agreement on settlement and cooperation with the ad hoc Public Prosecutor Office and the Attorney General’s Office. As a result, of the situation, the company registered this remaining balance of the provision related to this plea agreement of PEN 247 million. In accordance with accounting standards, in the previous quarters, this provision was registered using the discounted value method.
After third quarter 2022, total provision recorded in Aenza in this regard is PEN 484 million, of which 321.9 million are in sol and 40.7 million are in dollars. Additionally, other operating expenses registered a provision related to Chavimochic project of PEN 7.5 million for the impairment of the investment. As a result, operating income decreased in third quarter 2022 compared to that of 2021 with a margin of minus 1.6%.
Financial expenses. Net financial expenses increased by 21% compared to the same period of 2021 mainly due to interest payment related to the convertible bond and bridge loan. Also, it includes the adjustment of the present value of the accounts related to the Gasoducto Sur Peruano, which generated a negative impact of PEN 63.3 million up to third quarter 2021. The dollar exchange rate reached PEN 3.984 per dollar at the end of the third quarter 2022, $0.15 lower than the last year’s same period. Considering company’s net position of assets and liabilities in dollars, this situation generates a positive impact of PEN 2 million in results.
Consolidated net loss in the third quarter 2022 is PEN 331.5 million, which represents a net loss margin of minus 3.8%. Adjusted EBITDA increased 19.6% compared to that of the third quarter 2021, increasing from PEN 337 million to PEN 403 million.
Backlog. Consolidated backlog amounted $2 billion, of which $809 million correspond to recurring business, which are oil and gas segments of Norvial concessions. This figure represents a ratio of total backlog to revenues of 1.76 years.
Consolidated financial liabilities at the end of third quarter 2022 are $456 million and breakdown as follows: $26 million correspond to working capital associated to clients’ accounts receivables and leasings for the machinery and equipment. $250 million correspond to infrastructure project finance, which is debt without recourse, with guarantees and cash flow from each project itself. $120 million correspond to bridge loan disbursed in April 2022. $45 million correspond to the accounting record 48.8% of the shares of Norvial according to IFRIC. This operation includes the transfer of political rights to Aenza with an option to repurchase the shares. And lastly, $15 million correspond to leases according to IFRS 16.
Thank you for your attention, and we can start now with the Q&A session.
Question-and-Answer Session
Operator
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