1. Tragic assassination attempt on Miguel Uribe.
2. Multiple bomb attacks in the Cali region.
3. Gustavo Petro signs decree on labor reform referendum.
4. Multiple parties sign a letter stating that the referendum via decree constitutes a Coup d’état.
5. Labor reform 2.0 advancing in the senate/congress.
6. Fiscal reform suspended.
7. May inflation be lower than expected?
8. Continued poor tax returns.
9. Petro again muttering about a national assembly.

There is little transparency, but here are some brief thoughts. In the case of Miguel Uribe, everyone should focus on sending their prayers to the family at this time and calling for national unity. Instead, there are far too many, predictably, trying to exploit the situation for their political gain.

Kudos to those who have followed the path of consolidation (90% of them outside Medellín) and to the others (90% from Medellín) who want to be on the same side of the conversation as Marco Rubio & Benjamin Netanyahu, who simply had to comment, perhaps tone down the rhetoric, it is helping no-one at all in Colombia. There are no clear conclusions as to what happened, and the follow-up terrorism in Cali has only muddied the waters. There is a lot of investigation to be done, and that in Colombia invariably takes a long time.

The referendum isn’t a Coup d’état, and is best left to the courts to decide. Even four members of the cabinet didn’t sign in support. Personally, as Petro has hinted himself, I can see the referendum being scrapped if labor reform 2.0 is successful (now 70% approved), and there seems to be more cross-party support than previously. Regardless, the referendum has to garner over 13 million votes – that is a huge hurdle in this country. As for the national assembly, he’d be lucky to get it half-organized before leaving in 14 months.

The fiscal rule news is a real concern; the Peso dropped 1% post-announcement. We aren’t here just because of the Petro government, but they are holding the baby, and it’s their problem to try to fix. It remains to be seen, at a time of falling oil prices and tax revenues, combined with climbing imports, what can be done. Those tax revenues YTD (May) stand at $30bn, around $1.5bn below expectations.

May inflation (5.05%) from Departamento Administrativo Nacional de Estadística – DANE Colombia was considerably lower than April (5.16%) and also the consensus of 5.10%. However, with the Fedesarrollo YE estimate recently rising from 4.4%-4.8%, it’s unlikely that Banco de la República – Colombia will make any move from 9.25% at month end.

I don’t know about anyone else in Colombia, but perhaps we should just cancel Friday and stay in bed.

Regards.

Roops.

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Presidential candidate and Senator Miguel Uribe Turbay with his wife, Maria Claudia Tarazona. (source: social media)

At the very center is the labor reform. Due to the senate’s rejection of the referendum, Gustavo Petro is threatening to impose the plebiscite via decree. The rabid right/elite are furious at the government circumventing the democratic process and the country’s institutions. Will Petro succeed? Can he practically even get it done? Who even knows? It is far from the first time a president has acted via decree, but more than anything else, it highlights the glitch in the same system that allows Donald Trump to sign papers and cause global chaos.

At the same time, there is a continued effort to push through labor reform 2.0, with the final texts to be approved next week. Ironically, we now have the ANDI – Asociación Nacional de Empresarios de Colombia calling on the government not to sabotage it, after spending 12 months opposing it, it does beggar belief.

At the core of the problem? Poor treatment of workers. Many Colombian employers, not all, engage in practices, hiding behind legislation, that simply wouldn’t be accepted in developed countries. The ANDI feels the reform is less harmful than a referendum.

Accordingly, a number of presidential pre-candidates decamped to the Asobancaria congress and contaminated it with their conflicting views. Expect a plethora of legal speak over the coming weeks.

The same congress referred to the OECD – OCDE cutting 2025 GDP estimates from 2.7%-2.5%, and whilst disappointing, it is still a good number. The issue, in large part, is the deficit situation, and exports are a big part of that. This week’s April data was again poor. There was a drop of 6.5% with a 34.7% decline in commodities. Trumponomics at work in the oil sector. There will be much trepidation ahead on the import number from Departamento Administrativo Nacional de Estadística – DANE Colombia amid concerns of another huge deficit. This is due to continued robust commercial activity amidst the consumer durables sector, coupled with a record low unemployment figure, people are spending. To highlight this, May vehicle sales rose 33% YoY to 19,707.

The impact of all this turmoil? A strengthening Peso (<$4100) and a stock market up 28% (dollar terms) YTD – go figure!

Have a great day.

Roops.

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President Gustavo Petro. Photo credit: Presidencia de la República de Colombia.

The rationale or excuse is the uncertain fiscal situation as the authorities struggle to balance the books, and also this week’s developments with the USA. It’s a tough call as the fiscal situation has been a constant for the past year and the fact that the Peso closed Thursday at $4170, its strongest in several months, suggests fears related to Donald Trump, shared by half the world, are overstated.

For the Central Bank, this will be the last meeting before two governors are replaced by Petro’s picks – the February meeting will arguably draw a lot of attention for that reason.

Petro’s perceived belligerence at the beginning of the week when dealing with the treatment of returning Colombian migrants, is now being viewed as a reasonable humanitarian request. It will hopefully embolden other Latam countries to demand the same basic respect from the USA.

November imports from Departamento Administrativo Nacional de Estadística – DANE Colombia rose 13.7% to $5.8bn, more evidence of a recovering economy however with exports still struggling somewhat, the YTD deficit now stands at $9.9bn, higher even than the $9.1bn for the first 11 months of 2023. Exports at least are being helped by coffee, with new record high prices this week.

Catatumbo remains a mess on the Venezuelan border and the government is still struggling to wrangle control back from the ELN and FARC, who are fighting over this lucrative cocaine route.

About it for this Friday, have a wonderful day.

Regards.

Roops.

Never miss Rupert’s latest commentary.
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Headline Image: Coffee beans from Don Elias finca in Salento, Colombia. (Credit: Jared Wade)

According to poll data from June 1, 2023, only 26 percent of Colombian citizens approved of Petro’s performance as president. And this was before the scandal that shook the country’s political scene last Sunday evening, when Semana magazine released a series of WhatsApp audio files sent by Armando Benedetti, Petro’s former ambassador in Caracas, to Laura Sarabia, the president’s former chief of staff.

Among the least bombastic revelations is Benedetti’s claim that Alfonso Prada, Petro’s former interior minister, “stole the whole ministry with his wife.” This implies massive levels of corruption around Petro, who came to power with an anti‐​corruption agenda (quite cynically given his disreputable political alliances). Prada proceeded to sue Benedetti for libel.

Petro’s dwindling number of supporters may dismiss this as a politician’s petty slander against a rival in the cabinet. Far more concerning for them—and for Petro—is Benedetti’s matter‐​of‐​fact assertion to Sarabia that he himself obtained COP $15 billion (around USD $3.58 million at today’s exchange rate) for Petro’s 2022 presidential campaign, during which he served as the former candidate’s right‐​hand‐​man and main political handler. Petro’s campaign did not officially report any donation nearly as large. Its declared funds consisted mostly a series of bank loans, which were meant to be paid with the “reimbursement” sum that the Colombian state guarantees to candidates for each vote received in an election.

This editorial originally ran June 11 in the Cato Institute Blog. It is generously shared under a Creative Commons license. The original can be read here.

In many countries, an insider’s admission of how millions of undeclared dollars flowed into the president’s campaign coffers would bring down the government. Alas, Colombia is not one of them. This is not due to a lack of unashamedly corrupt presidents; as I wrote recently in The Wall Street Journal, the opposite has been the case. Rather, since the 1950’s, the Colombian elite’s idiosyncratic approach to presidential corruption has followed the maxim, attributed to journalist Hernando Santos (1922–1999), that the trouble with overthrowing a president is that he may fall upon those doing the toppling.

Already in Petro’s case, the three‐​member House of Representatives commission created to investigate Benedetti’s statements includes two members of the president’s own party. The enquiry will be a charade, which is a pity since the source of the undeclared campaign money is as important as the sum itself. In an interview, Benedetti told Semana that the money “did not come from entrepreneurs,” meaning the legal business community. Suspicion has fallen on the Marxist guerrilla groups and other drug trafficking organizations, but also on the Venezuelan regime of Nicolás Maduro. Anonymous, the hacker group, claims that Maduro financed “part of the campaign of the current president of Colombia,” but has not published evidence hitherto.

What is certain is that, in regional terms, the Maduro regime has been the principal beneficiary of Petro’s election. To begin with, Colombia recognized Maduro’s presidency after a three‐​and‐​a‐​half‐​year hiatus, and Petro himself has met Maduro four times since his inauguration. His government, which opposes any future hydrocarbon exploration in Colombia despite dwindling reserves, has promoted the idea of importing Venezuelan natural gas.

While Petro wages a political war against Colombia’s key petroleum industry—crude oil has been the country’s main legal export for decades—he lobbied President Joe Biden to end American sanctions against the Maduro regime. This would imply renewed Venezuelan oil exports to the U.S. market (even if socialism devastated Venezuela’s oil industry well beyond immediate or even medium term repair). Petro’s “shoot yourself in the foot / prosper‐​thy‐​neighbor” policy is devoid of any rationality. Unless, of course, Colombia’s increasingly authoritarian president is somehow subject to the Venezuelan tyrant.

Petro’s eco‐​fanatical crusade against the hydrocarbon industry is but one example of how his government is bent on destroying the few areas of the Colombian economy that are functional. Other examples include his plans to put the state in charge of centralized funding for the healthcare and pension systems, both of which are efficient—although certainly not perfect—thanks to private sector involvement and some degree of consumer choice. Where things are already problematic, Petro’s policies would make them worse. For instance, he wants to make a rigid, overregulated labor market even less flexible and more hostile to businesses.

Then there is the matter of rising insecurity, an old problem that, until recently, appeared mostly solved, only to resurface dangerously in the last year. Under Petro, illegal armed groups have expanded their power as they launch constant, deadly attacks against the armed forces and police. It all brings to mind the dark era of the late 1990’s, when Colombia was on the verge of becoming a failed state as it came under siege from the FARC guerrillas, which are still up in arms despite the much‐​touted “peace” agreement of 2016.

Usually, a crisis in government breeds economic instability. Under Colombia’s current government, however, the opposite has been the case. Since the Benedetti scandal broke, the peso rallied to reach its highest value against the dollar since mid‐​2022, when Petro was about to win the presidential election. In October, two months after he took office, the peso reached an all‐​time low against the dollar. Amid the current political turmoil, forward‐​looking markets are anticipating the failure of Petro’s legislative initiatives in health care, pensions, and labor law. Which is to say, there is speculation that Colombia’s institutional framework has already survived Petro’s statist onslaught. The weaker his position, the thinking goes, the less likely it is that non‐​leftist parties will lend him their support, which he needs to obtain congressional majorities.

I fear, however, that markets may be getting ahead of themselves. The Colombian congress is minimally ideological and highly transactional. There is still a good chance that, issue by issue, Petro’s government can negotiate just enough votes to have his “reforms” approved, in which case only the courts will stand in the way of his agenda.

Not that Petro is respectful of any check or balance. This week, he propounded the theory that, since he was elected, his government represents “the will of the people,” meaning that any opposition to his political project—including from the news media—is part of an illegitimate, “soft coup.” The onslaught, in other words, is far from over.

In my view, the worst part about Petro’s election victory is that, at this time last year, Colombia was in need of radical reforms. Above all, a chronically sluggish economy required budget discipline, public spending cuts, drastic debt reduction, a strong currency (ideally through dollarization), far lower taxes, labor market deregulation, subsoil privatization, school choice, and an end to non‐​tariff barriers. By electing Petro, however, voters decided to do precisely the opposite on all fronts. As warned, most already regret it.

This work is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License.

Colombia has been paying nearly 40 trillion pesos annually in politically motivated gasoline subsidies.

Fuel prices are based on dollar-denominated petroleum prices, and last year, the Colombian peso plunged against the US dollar as the country elected its first far-left president, Gustavo Petro. Global supply-chain disruptions and the Russian invasion of Ukraine have added to the inflationary pressures that Colombia faces. Throughout Colombia, gasoline prices are now seen in a range between 11,100 to 11,300 pesos per gallon (roughly $2.40-2.40 per gallon).

To parse out the company’s success, and hopefully get a glimpse of what is to come for the company and its stakeholders, Loren Moss, Finance Colombia’s executive editor, traveled to the sprawling manufacturing complex of the company, near the waterfront where the Magdalena river exits into the Caribbean sea.

There, he had an in-depth conversation with Santiago Giraldo, the CFO of Tecnoglass, who has shepherded the company’s finances and investor relations through its growth from a micro-cap to a small-cap, to now, a mid-cap international company with global ambitions.

Finance Colombia: So, I’m here with Santiago Giraldo the CFO of Tecnoglass; great, to be back here and see you again. I know it’s been a busy year. I don’t want to come up here and interrupt you when you guys are busy growing and breaking records; continuing to break records. It’s amazing what you guys have done. Your results came out just last week for 2022 and it’s kind of it’s hard for me to write headlines as a journalist, because it’s like: Tecnoglass, breaks records…Tecnoglass breaks records…It is like a broken record itself because I keep saying the same thing over and over again, but that’s a good problem to have! So, give me a quick recap on 2022. I mean, you guys—I know a couple of years ago, you really entered in a strong way, the residential market, that was not something that Tecnoglass was originally built on. But that’s been a big motor for your growth. Maybe if you can unpack that little bit?

Santiago Giraldo: Absolutely, it was a record year and well beyond expectations, internal budget and everything that we had thought. And there were several factors that contributed there. You mentioned the residential segment, we basically have grown that from just $10 million dollars in 2017 to over $300 million in 2022. It’s been accelerated growth. We’re taking market share from others but also it helps that places like Florida and Texas in the southeast, tax-friendly states are seeing a lot of influx of people moving down there. So the activity behind the demographic shift that we’re seeing is playing a huge part into what we’re doing. So there’s just other secular trends, there’s demographic trends but there’s also other things that are playing a part. There’s tax incentives provided by the government for people to invest in impact resistant windows. There have been insurance incentives. For insurance companies, providing incentives to people that replace their windows to make sure that they are impact resistant as well.

Tecnoglass has a 3 million square foot headquarters and production facility in Colombia’s Atlantic port city of Barranquilla

So there’s been a combination of things that have helped us grow and take market share from others, we are situated in a different scenario if you will, as far as what’s taking place in the world with inflation, headwinds with supply chain disruptions, we labor constraints. As you can see here in Barranquilla, we pretty much do everything in-house, we are fully vertically integrated. And we haven’t had the same dynamics as far as labor constraints. As you know here in Colombia the unemployment rate runs above 12% and we have very little turnover. So all of those factors plus the fact that we have our good product with good quality and fast delivery times really lined up. It’s as if all the stars lined up for us and what you saw were the results as of 2022, where we were able to grow 44 percent. So there’s just not one factor that I could speak of, I mean, there are different things that basically played a huge part into what happened.

Finance Colombia: You know, it’s interesting because we saw interest, we see interest rates around the world, kind of rising. There’s been a lot of loose money policies with governments to fight the COVID pandemic. And now, we’re seeing the aftereffects of that. And the US government, of course, has raised their rates and we see as a result mortgage rates are going up. I would imagine that has—Have you seen any kind of damper effect on that because obviously mortgages rates…construction is very dependent upon them?

Santiago Giraldo: Yeah, it’s a headwind but if you look within our sales, roughly 67 to 70 percent of what we do is repair and remodeling. So we’re not relying on home builders, we’re not relying on new housing starts.  For that business to grow—I mean there’s obviously some correlation but when you think about it, repair and remodeling is more countercyclical in nature. In other words, if you’re at your house and you see that mortgage rates went up to 7%, you’re not going to go buy a new house and lock yourself up for 30 years into that rate. You’re more likely going to reinvest in your own home, knowing that prices are still high and then mortgage rates are much higher than what they were a year ago. So that plays into what we do because if you’re staying in your home and you’re carrying out some of those remodelings that you pushed out for years, that includes windows.

“…we basically have grown that from just $10 million dollars in 2017 to over $300 million in 2022.

So 70 percent of our windows or of our business is related to repair and remodeling. So that places us apart. The other thing is that we’re still rather small. If you think about it, we don’t need the market to grow or the industry to grow for us to grow, right? I mean if you think about our largest competitor in the state of Florida that they sell about $100 million. Here we are, you know, just getting north of $300 million which is rapid growth but we’re still nowhere close to the larger players in the state and in the country.

So there are still market share opportunities for us to take from these guys because those guys are constrained by labor are constrained by headwinds on inflation. There’s still supply chain disruptions. So we have an opportunity to continue gaining that market share. Despite the fact that as you mentioned, there are some challenges mainly on the new home construction side, which is still not the primary source of our income.

Finance Colombia:  Got it. And also, I mean, to mention the relative size of Tecnoglass, even though it’s one of the biggest companies in Colombia, I think the last time I saw the statistics you still had less than one percent market shares in the United States or something like that. So there’s so much room to grow and like you said, you don’t need—the market doesn’t have to grow for Tecnoglass to grow, you’re not even distributed in all 50 states yet.

Santiago Giraldo: That’s right. I mean that the industry as a whole is about $32 billion per year between manufacturing and installation. We ended up here s$770 million more or less. So we’re talking about, call it two percent, right? Obviously not everything is addressable because a lot of it is commoditized; its kind of like your typical big box store type project which we don’t supply. Everything that we do is built to suit, high value-added components. So that is not necessarily addressable, but by our calculation, at least $20 billion of that is addressable and another $700 million. We are still a small portion of the business like you mentioned, we are pressing throughout the US on the commercial side. We’ve been doing business throughout the US pretty much for the last 25 years, right? Obviously much stronger in the state of Florida and the southeast. So, there’s opportunities to grow the commercial side, but where the upside comes from is that we still haven’t tapped into anything outside of Florida on the residential side.

 “It’s as if all the stars lined up for us and what you saw were the results as of 2022, where we were able to grow 44%”

So, that $300 million that I mentioned on that segment is strictly Florida. So what we’re doing about that is opening up showrooms throughout the US so we can leverage our cost efficient platform to manufacture in Colombia and ship everywhere else in the US, and we have a showroom that is currently open in Manhattan, New York. We have a showroom that is currently open in Charleston, South Carolina. We’re about to sign a lease in California in Los Angeles to service that market, and the idea would be to open up showrooms in Texas, Arizona, and Nevada in the rest of 2023 and into 24. Right now, we have zero revenues in those states, anything that we get from there is outside, right? So you’re going from nothing to something. And we have the same competitive advantages that we have in Florida. They also play the same way in different parts of the US. Transportation is not an issue, right? We know that there is a trade imbalance between the US and Colombia. There are a lot more containers coming in than there are going out. So going into New York and even going to California through the Panama Canal is still efficient so we can penetrate those markets just the same as we have done in Florida. So that’s what we want to do.

Finance Colombia:  You mention something interesting and you talk about the trade imbalance between Colombia and the United States. I know that there’s a trade imbalance with some other countries as well, but right now, it’s recovered a little bit, but the peso last year took quite a dump. Especially, I think a lot of it was around election-related uncertainty that’s kind of, you know, built into the pricing now, but how much—in a lot of countries you know, the travel sector we follow closely and they’ve really taken a hit because of that, but I would imagine that it’s been helpful as a company that manufactures in Colombia because of labor and because of other costs, how much of a factor has the peso dollar relationship been in last year’s results?

Santiago Giraldo: That’s maybe the one aspect that we didn’t touch when I said earlier the stars lined up, obviously you don’t want your strategy to be predicated on what happens with the FX rates. But for us, when you’re selling 95 percent more or less, in US dollars and your cost and expenses are roughly 35-40 percent in the Colombian Peso, then anytime that the currency is devaluated and is weak, it’s a tailwind to the business, right? To the piece, a Tailwind to the P&L. So for us, what happened here over a year with the devaluation of the peso, I don’t think as a country we want to see that, obviously because of inflation and different dynamics of what’s taking place right now. But if you look at Tecnoglass, on a standalone basis it is hugely positive for the company and for P&L. We think that the currency is going to continue to be weak for the time being I think. As you mentioned some of it is related to what happened with the elections and some investors’ fears around that, I think that up until last week. I think that that was kind of coming down and the peso was revaluated again.

Above photo: Tecnoglass products make up the facade of distinctive architecture such as Fordham University (photo courtesy of Tecnoglass)

But aside from that, I think worldwide what you’re seeing from monetary policy, especially with the Fed continuing to raise rates and apparently, they’re not done yet, that’s keeping a lot of emerging market currencies low, and that’s going to be the case for the foreseeable future. So, that’s playing a part, it is definitely helping out and in is also helping  to be able to kind of price competitively if you need to, because you know that you have that extra cushion to do that. It hasn’t come to that.

I mean we expected prices to calm down a bit because input prices have come down since the peaks of the pandemic. Aluminum was at $4,000 dollars per ton, now it is at $2,400. So those sort of things would lead you to believe…I believe that pricing is going to come down. That hasn’t happened yet. I think our competitors are still seeing a lot of inflation. Wage inflation continues to be prevalent. So we’ll see what happens with that. But so far, you know, we continue to be able to hold pricing and selling in dollars, is just a huge plus.

Finance Colombia: That’s great. Now I’m talking to you here in your new showroom, we are at your headquarters, your operational headquarters in Barranquilla, and I didn’t see this before the last time I was here. And it’s really nice because I thought I had…I mean, I’m no architect or glass expert, but I thought I had a good idea of your product line, but really, I see it’s even more expansive than I thought. And this is a great idea to be able to show it and you make sure that you have these showrooms. Now, you’re building them throughout the United States. I know that the product is very efficient when it comes to solar energy, but in all the new showrooms you mentioned, don’t forget about the Midwest as you guys grow, I’m a Midwesterner! But still, you know, as you build out this this infrastructure to be able to showcase the products and things like that, you also mentioned 44 percent growth. Now you own your own factories, you own your facilities down here, but tell me about what kind of Investments, tell me about the capital Investments that you’re making to be able to keep up and to stay ahead of demand. So that you want your backlog to grow because you get new orders, but you don’t want your backlog to grow because you’ve exceeded capacity.

Santiago Giraldo: Yes. And I think that’s been the biggest challenge when people ask: what keeps you up at night? I think (COO & co-founder) Christian has been up at night the last two years because of the need to address that growth. Because to be honest with you, not only have we benefited from all the factors that we just discussed, but there’s such a shortage of windows as with anything else right now. Obviously,  the lead times have become longer, there’s such a shortage of windows, we have been getting kind of a proactive approach, but some of these potential clients that we wanted to go after, that are looking for us to be their providers. But when you have that and you have the demand in place, but you have to be able to make sure that you are able to address that demand.

And the only thing that you can do is basically invest in capex, to grow your footprint, to grow your operational capacity. And through the last two years, we have invested almost $125 million in growth capex to be able to get the factory where it is today, with the investments that we are completing right now. We are going to have operational capacity to get to $950 million, that’s going to be by April or May of this year, and we’ve been investing in land, investing in warehouse space.

We have been investing in automation. I mean, automation is a huge benefit whereas some of our lines were not automated. Now, we have four out of ten, eleven lines that are fully automated and that brings benefits from an operational capacity perspective but also It allows us to redeploy some headcount to other areas. It reduces material waste. So is what we’re doing right now and we’re having to assess what that’s going to look like essentially on a month-to-month basis because $950 million in operational capacity sounds like a lot, but if for whatever reason we are able to grow in a similar fashion as we did last year, we will be tapping against that capacity already.

So, we have to be very vigilant. The good thing is that mainly on the commercial side, you get a lot of leeway and you get some visibility as to what things are going to look like because anything that you booked into the backlog, today tells you what the activity is going to look like 12, 18 months out. So if we can continue growing, the pipeline grows in the backlog. We know that we’re going to have our hands full down the road. And we need to invest in capacity today, and that’s the main concern, because that brings a lot of challenges, right? You’re stressing the factory, you’re becoming more complex and logistically you’re travelling to many different—more places and that creates some challenges of its own. But hey, as you said earlier, it’s a good problem to have.

Finance Colombia: Now last year, we celebrated, your jump, if you will, from NASDAQ to the New York Stock Exchange. That’s an interesting move, because NASDAQ NYSE, of course, is the granddaddy of the exchanges at least in North America, opening I think in the late 1700s, it is in many ways the most prestigious of the exchanges. NASDAQ also has matured, it used to be kind of…well there used to be like three exchanges back in the old days, you remember. But still, that was an interesting move because companies don’t necessarily need to make that move. But you guys felt the need to do that. Maybe if you can, if you can recap what was behind that decision and then it was kind of a mid-year thing. How it’s been for you so far?

“We’re not making decisions for the next quarter, or the quarter after. I mean, I think we’re making sound decisions in line with our strategy, to make sure that this company is something much larger, bigger, better in 10 years to come, not necessarily what’s happening next quarter.”

Santiago Giraldo: You mean NYSE who was the granddaddy, you said NASDAQ just to just to clarify.

Finance Colombia: Yeah, I got confused!

Santiago Giraldo: So we made the move there to get more exposure right? I mean it’s obviously a broader audience. We also wanted to get more liquidity in the stock. if you look at what’s happening with liquidity we’re trading over $10 million dollars per day, 250,000 shares more or less on a daily basis, so we wanted to get that platform to be able to get to new faces, be able to be able to tap into in into new investors. You also get what’s called a market maker, which for us is the Citadel, which makes sure that there’s always going to be kind of a buying order a selling order and that helps with liquidity so it’s been good. It’s been a good relationship; obviously nothing but good things to say about NASDAQ. We started there 10 years ago, and they provided a great platform as well. They’re obviously very—kind of tech focused and I think they’re the best at it, but we felt that this was a good fit for Tecnoglass at a good point in time when the company continues to mature and become larger. Now today we can be considered a mid-cap company. Yeah you know, starting out from a micro-cap to a small-cap, now today we’re technically a mid-cap company and we can potentially get onto new investors’ radars, so we wanted to do all of that.

Finance Colombia: That’s great, you know, I got confused because in my mind I was thinking back to…I’m old enough to remember the American Stock Exchange because there was the ASE and NYSE and then NASDAQ came in, and ASE then merged with NYSE. So it’s kind of an old timer’s thing! But anyway, speaking of new markets: So tell me I mean Tecnoglass continues to expand throughout the United States, you’ve gone from residential—or from commercial into, expanding into residential—still, keeping commercial strong, but talking about new markets: what kind of new products; whether that’s new lines of business, or new types of products or even any new geographies outside of the United States…I don’t want to kind of lead the question. Just help me understand how you’re expanding. Not just in growth, in terms of vertical silos, but horizontally in terms of the breadth of your product lineup.

Santiago Giraldo: Yeah. This is a day-to-day occurrence. Last year we…earlier last year we basically developed a product for home builders called Multimax, which is essentially a product that is not targeted to a couple of million dollar home but maybe a Tract home that could be $300-400,000 dollars; very high quality, but not the same kind of value-added components that you will require for some of these larger homes, right?, So that’s been very well received, we’re already selling to seven or eight different home builders that have nationwide reach within the US, so that’s been very well received.

And we continue, we continuously invest in research and development, to make sure that we are developing products for new geographies; we mentioned earlier that we’re opening up showrooms throughout the US. Well, if you think about it, not all of those geographies require impact-resistant glass and windows,

When you’re talking about Miami it’s not the same thing as talking about selling a home in Los Angeles or selling a home in Arizona. All of those places require different products that are more specific to the conditions of those places. So for instance if you look to go into Arizona, where there’s extreme heat at some points of the year you’re going to look more for insulated glass that has some energy efficient qualities. So, there’s always product developing and you know we’re working on new technology for glass that is going to serve as solar panels for instance.

We’re working with different providers that have that technology so we can license that product and make sure that when the product becomes economically viable for mass production, kind of like the Tesla effect, that we are there. We want to make sure that we are present in that because that’s going to be a huge development. We’re working on other things that we should be announcing within the next couple of months, but it’s an ongoing process. You want to make sure that you’re up on top of what’s happening, and you’re not lagging behind.

Finance Colombia: You know, I hope to get back up here soon and talk to Christian, the co-founder and CEO of the company. You know, you guys have solar panels on everything, and I hope to talk about…Tecnoglass has a very significant social mission here, especially on the coast, here in Barranquilla which is like the industrial capital in many ways, of all of Colombia, but especially here on the coast, and there’s so much to talk about! Some of the things you’re doing here in the community as well, I hope to talk to Christian soon about that.

Is there anything that maybe you wanted to mention that I forgot to ask you? I mean there’s so much good news to cover, and it’s just good to be back up here and it’s exciting. You know, every time I get my on my phone I get my alerts and the stocks I follow, and no matter what other bad news is happening, I can count on some good news coming from TGLS.

Santiago Giraldo: I hope that continues to be the trend. I mean it’s kind of like, investors and all stakeholders tend to have short memories, right? Short term memory, so it’s like yeah you might come out with great news as we just did, but we’re already looking as to what we’re doing for the next quarter, the next year and the next decade.

That’s the good thing about Christian and (CEO) Jose. I think they’re looking for this company to be something much bigger in five, ten years out. We’re not making decisions for the next quarter, or the quarter after. I mean, I think we’re making sound decisions in line with our strategy, to make sure that this company is something much larger, bigger, better in 10 years to come, not necessarily what’s happening next quarter and how we’re going to report results.

I think that if you do that and you stick to your strategy, those things are going to come. The quarter to quarter results are going to come, so we’ll see. I mean, more to come. We continue to be bullish about the future; short-term and long-term, despite all the uncertainties in the world. Obviously from a macro perspective, there’s a lot of challenges, but we feel that we’re well positioned, we feel that we have structural advantages that will carry us through and we’re well positioned to withstand a down cycle if that was to come, so hopefully the news will continue to come. And next time you see an alert, despite what’s happening in the world you’ll get a smile on your face.

Finance Colombia: You know, you try to be as balanced as possible but it’s really always exciting to come up here, and talk to you guys, because not just what you can see in the financial results, but what you can see in the community and what you can see in the different things make it really…it’s literally fun to cover Tecnoglass, and it’s great to see the good things that you’re doing for investors, for the consumers of your product, and for the community here in Barranquilla.

Santiago Giraldo:  Yeah and hopefully, do follow up with Christian, because there’s so much, so many things to tell about ESG, about what we’re doing for the community. I’m obviously not going to steal his thunder and let him talk through all of that. But it’s been nice that not only is the company doing well, but the company gives back to the community. Now we are almost 10,000 employees, you know last time we talked I think we were maybe 6,000, so we’re generating a lot of employment, good employment for the local communities, and I think that’s going to continue so far as we can continue growing. You know it’s not the point that the company is doing well, you also want to see your environment and stakeholders doing well.

Finance Colombia: Absolutely. Well, Santiago Giraldo, the CFO of Tecnoglass, always a good “parcero,” (Colombian slang for a great friend) it’s great to talk to you in in Barranquilla and continue the success that you’re having and as I’m sure you will.

Santiago Giraldo: Thank you so much and come back anytime

Tecnoglass has international headquarters in Barranquilla, Colombia, and facilities in Miami, Florida

Colombian airlines are being affected by a liquidity crunch caused in part by the plunge in the Colombian peso. The airlines must charge domestic fares in pesos, which are trading at almost 30% lower than one year ago, but pay for fuel and aircraft financing charges in dollars. Well capitalized airlines have investment backers to keep their airlines liquid, but startups and young carriers are in a more challenging situation.

Finance Colombia has reached out to Ultra, which so far has not responded.

In an internal message, Ultra told employees: “With respect to payroll, we tell you that we are managing the resources to comply with payment, like we always have done, through a disbursement from our financial entity, for which it is probably that we have to move this obligation to the end of the month.”

“We understand the negative effects that this causes, but we are grateful for your accommodation, understanding, and support.”

The majority of flower exports normally go to the United States, but they also tend to be exported to other countries like the United Kingdom, Japan, Canada, and the Netherlands.

While the flowers that come from Colombian growers are well-regarded for their  quality, many problems plague the industry, especially the escalating costs of shipping the products from places like Antioquia and Cundinamarca to  North American and European countries, costs that have largely increased due to inflation.

The planning of the logistics to get the flowers from point A to point B includes a massive amount of coordination from multiple actors, who have to transport truckloads of refrigerated flowers to airports safely. The costs have been affected by the higher price of airplane fuel in the market, as well as the added costs of labor and other equipment being affected by inflation.

“In 2022, there was a challenging environment throughout the industry that is believed to continue throughout 2023. This was marked by the rise in the price of aviation fuel, added to the increase in the dollar and inflation. We continue to advance our plan to become more cost-efficient through various initiatives to contain some of the fuel impact,” Avianca Cargo CEO Gabriel Oliva said.

Beyond that are the increasing costs of keeping the operations going in the first place. Augusto Solano, the leader of floral trade association Asocolflores, said that inflation has aggravated the costs of running a flower business, one that has already been suffering from an aging workforce.

“The sector expects to export between 700 and 800 million stems during the season. This year’s consumption could be affected, although we do not know to what extent. Inflation can impact the pocket of consumers. Already in December, we saw a drop in exports. This situation is going to require an additional effort to promote the entire chain,” Solano said.

“Inputs such as fertilizer, the plastics to cover the greenhouses or the meshes for the hoods have increased. In the sector there are practices to hedge against volatility with exchange hedges. Even so, the dollar has been a relief [for these operational costs],” José Antonio Restrepo, manager of the Ayurá farm, said.

Despite these problems, industry analysts like BASF Colombia marketing manager Carlos Sepúlveda continue to be optimistic about the future trade viability, especially as the country’s flower exports stand out from competitors like Ecuador and Kenya.

“In addition to the important contribution in generating foreign exchange for Colombia and the generation of a sector with a high reputation in the world, the cultivation of flowers has a positive impact on economic and social development in the country. In this way, competitiveness is essential, especially to maintain the commercial qualities of the flower, whose market price is determined by its aesthetics at the point of sale and not at harvest,” Sepúlveda said.

Above photo of Medellín’s “Feria de las Flores” (Flower Festival) courtesy of Medellín Convention & Visitors Bureau.

Total revenues for the full year 2022 increased 44.2% to a record $716.6 million compared to $496.8 million in the prior year. Changes in foreign currency exchange rates had a negligible impact on total revenues in the year.

Gross profit increased 72.5% year-over-year to a full year record of $349.5 million, representing a 48.8% gross margin, compared to $202.6 million, representing a 40.8% gross margin, in the prior year. Operating income for the full year 2022 was $226.4 million compared to $117.0 million in the prior year. Net income for the full year 2022 was $156.4 million, or a $3.28 per diluted share, compared to net income of $68.4 million, or $1.44 per diluted share, in the prior year. Adjusted net income¹ for the full year 2022 was $158.5 million, or $3.32 per diluted share, compared to $82.7 million, or $1.74 per diluted share, in the prior year. Adjusted EBITDA¹ for the full year 2022 improved to a record $265.7 million, or 37.1% of sales, compared to $150.3 million, or 30.2% of sales, in the prior year.

To view the Tecnoglass Q4 investor presentation, click here.

Investing in technology

During 2022, the company initiated enhancements at its glass and aluminum facilities to increase production capacity and automate operations. The company was successful in increasing installed production capacity to an amount equivalent to over $800 million of annual sales at the end of 2022, which is expected to be followed by a further expansion of installed production capacity to an amount equivalent to approximately $950 million of annual sales by the end of the second quarter of 2023.

Optimism for 2023

Tecnoglass CFO Santiago Giraldo explained: “Based on our current invoicing schedule and strong demand for our architectural glass products, we are pleased to introduce our full year 2023 outlook for revenues to grow organically to a range of $790 million to $830 million (approximately 13% at the mid-point of guidance) and for adjusted EBITDA to increase to a range of $300 million to $320 million. This implies adjusted EBITDA growth of approximately 17% at the midpoint. We believe the investments we have made in our production capabilities and structural advantages stemming from our vertically integrated platform will continue to help us drive above market growth and exceptional profit performance, allowing for continued strong cash flow generation in the full year 2023. Based on the board’s confidence in our projected performance and expected cashflow, we will continue to actively pursue effective ways to generate value for shareholders through growth investments, return of capital to shareholders and other value-enhancing actions.”

Strong Fourth Quarter Finish

Total revenues for the fourth quarter of 2022 increased 60.2% to $211.1 million compared to $131.8 million in the prior year quarter, driven by an increase in the company’s commercial activity, strong growth in single-family residential activity and market share gains. Single-family residential revenues increased approximately 59% year-over-year, representing 40.3% of total revenues for the fourth quarter, helped by market share gains and the continued positive demographic dynamics in our main markets. Changes in foreign currency exchange rates had an adverse impact of $0.6 million on both Colombia revenues and total revenues in the quarter.

“Our record fourth quarter results reflect an exceptional finish to another year of above market performance led by the focused execution of our dedicated team members and the resiliency of our vertically integrated business model. We continue to benefit substantially from our previously implemented high return automation and capacity enhancements, which contributed to record gross profit and Adjusted EBITDA for the quarter and full year. Additionally, our prudent working capital management and market share gains in our shorter cash cycle single-family residential business helped generate our 12^th consecutive quarter of robust cash flow. Our strong capital position has given us the flexibility to invest in further structural enhancements, increase our cash dividend, and improve our leverage profile with net debt to Adjusted EBITDA now at a record low 0.2x for full year 2022. As we look to 2023 and beyond, we remain confident in our ability to strengthen our existing customer relationships and expand our market share through geographical diversification, innovation, quality and stable lead times to produce another year of strong financial performance and returns for our shareholders,” said CEO and co-founder José Manuel Daes.

Gross profit for the fourth quarter of 2022 nearly doubled to $110.2 million, representing a 52.2% gross margin, compared to gross profit of $56.6 million, representing a 42.9% gross margin in the prior year quarter. The 930 basis-point improvement in gross margin mainly reflected operating leverage on higher sales, favorable pricing dynamics, greater operating efficiencies related to automation and a favorable FX trend given the recent depreciation of the Colombian peso. Selling, general and administrative expense (“SG&A”) was $33.4 million for the fourth quarter of 2022 compared to $23.7 million in the prior year quarter, with the majority of the increase attributable to higher shipping expenses as a result of a higher sales volume, higher shipping rates and a higher mix of sales going into the more fragmented single-family residential market. As a percent of total revenues, SG&A was 15.8% for the fourth quarter of 2022 compared to 18.0% in the prior year quarter with operating leverage more than offsetting higher transportation costs.

COO Christian Daes added: “Building on our solid momentum throughout 2022, we were pleased to produce record results for the fourth quarter and full year. This was largely attributable to our multi-year efforts to deepen our presence in the highly profitable single-family residential end markets in combination with capitalizing on rebounding commercial activity. Overall quoting and bidding activity in our markets remains strong and our record backlog position of $725 million puts us on solid footing with visibility on projects in our multifamily and commercial project pipeline into 2024. As we look forward, we remain committed to gaining additional share and expanding our geographic presence in single-family residential by advancing our product innovation, opening additional show rooms and doing our part to keep our customers on schedule with their projects. We believe these factors, along with our strong industry relationships and structural competitive advantages through our vertically integrated platform, collectively position us well to create additional shareholder value in 2023 and years ahead.”

Net income was $55.1 million, or $1.16 per diluted share, in the fourth quarter of 2022 compared to net income of $19.8 million, or $0.42 per diluted share, in the prior year quarter, including a non-cash foreign exchange transaction gain of $2.9 million in the fourth quarter of 2022 and a $4.6 million loss in the fourth quarter of 2021. As previously disclosed, these non-cash gains and losses are related to the accounting re-measurement of U.S. Dollar denominated assets and liabilities against the Colombian Peso as functional currency.

More cash, less debt

Tecnoglass ended 2022 with total liquidity of approximately $270 million, including cash and cash equivalents of $103.7 million and availability under its committed revolving credit facilities of $170 million. Given the company’s continued growth in Adjusted EBITDA and strong cash generation, debt leverage continues to trend lower and now stands at 0.2 times net debt to LTM Adjusted EBITDA, compared to 0.8 times in the prior year.

The company declared a quarterly cash dividend of $0.075 per share for the fourth quarter of 2022, which was paid on January 31, 2023 to shareholders of record as of the close of business on December 31, 2022.

Investor Conference Call

This morning, March 2, 2023 at 10am (NY & Bogotá time), Tecnoglass will host a webinar and conference call to review the company’s results. The conference call will be broadcast live over the Internet. Additionally, a slide presentation will accompany the conference call. To listen to the call and view the slides, please visit the Investor Relations section of Tecnoglass’ website at www.tecnoglass.com. Please go to the website at least 15 minutes early to register, download and install any necessary audio software. For those unable to access the webcast, the conference call will be accessible by dialing 1-877-269-7751 (domestic) or 1-201-389-0908 (international). Upon dialing in, please request to join the Tecnoglass Fourth Quarter 2022 Earnings Conference Call.

If you are unable to listen live, a replay of the webcast will be archived on the website. You may also access the conference call playback by dialing 1-844-512-2921 (Domestic) or 1-412-317-6671 (International) and entering passcode: 13735775.        

The Central Bank has their non-decision meeting this week. They will sit down and discuss life but after the meeting we won’t know so much as to know if they had coffee or tea, or whether there were biscuits; at minimum there should be a press conference to get a feel for how they see the world.

All this is building up to February CPI at the end of the week…the folly of having a meeting where rates aren’t raised could be exposed. Analyst surveys are calling for a 13.25% terminal rate, versus the current 12.75%, that expectation is for March, but only because this week there is no full meeting.

January Unemployment will be released on Tuesday and there will be much interest after it came in much higher than expected (10.8%) in December. The IMF in a recent report suggested that at 11.1% Colombia would have the highest unemployment rate in the region in 2023. However, this needs to be put in context by the fact that over half of the working population is ‘off the books’ therefore accuracy is lacking.

On the markets the Peso had a bumpy week before recovering somewhat by Friday. Again the harbingers of doom are blaming it all on politics but in reality this is generally a bigger global picture. This applies to the equity market as well, it has underperformed but there are a plethora of reasons beyond the reforms. The latest ETF flow data tells us that we have had three straight weeks of equity and bond outflows from both Emerging Markets and Latin America – Chile, Peru and Mexico all had equally, or worse, weeks.

The COLCAP last week held above support levels with the results season in progress. Stock buy programs for Cementos Argos, Celsia and Grupo Argos certainly help.

Over the weekend Ecopetrol was in the headlines as they announced their latest reserves data – it has risen by 0.4% to just over 2 billion barrels which represents 8.4 years of supply. That particular stock will be keeping much more of an eye on the oil price which towards the end of last week was starting to show some signs of life.

Wishing you all a good week.

Roops

Please find below the LinkedIn Video :

https://www.linkedin.com/posts/rupert-stebbings-927b6316a_colombia-economy-emergingmarkets-activity-7035941698530615297-3skW?utm_source=share&utm_medium=member_desktop