Cementos Pacasmayo S.A.A.

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Different organizations. We're extremely proud of this achievement since Pacasmayo is the only company in the top 10 that does not have a national presence. We truly believe this is a reflection of our constant work in the past 65 years. Reputation is a value that stakeholders attribute to a company based on their perception and interpretation of the image that a company communicates and projects over time. Therefore, proper reputation depends on the actual activities and the tangible results that stakeholders experience. We take this recognition with great honor and responsibility, and we are absolutely committed to continue delivering a positive experience to all of our stakeholders. As I'm sure you're all aware of already, El Niño is forecasted for 2024, currently with a high probability of being a moderate phenomenon. We have already experienced the effects of inclement weather earlier this year, with Cyclone Yaku that, among other things, interrupted part of the road that connects the main seashore quarter in Piura with our plant. Thanks to our conservative inventory policy, we have not been affected by the interruption, but we immediately started planning a solution. We are currently working with the government to install two modular bridges supported by concrete foundations and precast piles. In addition, two detours are currently being built to provide transit continuity to ongoing works which should be finished by the end of next month. The whole project has been planned to minimize the risk of having to halt the construction because of heavy rains. Therefore, the schedule foresees the completion of the underground work by November when there is lower probability of heavy rains, and only the surface work will remain until the end of January, which is the expected completion date for the whole project. We are very confident that our prevention and risk management strategy as well as execution capacity will lead us to restore full transit according to our scale. As we have previously mentioned, this year we launched the COSACO, a cement bag that completely disintegrates with the concrete mix, generating zero waste. For us, this is much more than a simple cement bag. It's a solution that has the potential to revolutionize the market, particularly the self-construction segment. As with any transformational change, It requires, and will require, much effort in order to gradually change culturally established paradigms and consumer habits. This is precisely why we are both glad and proud that the COSACO won the Semana Economica ESG Sustainability Prize this week, both in the Sustainable Product Innovation category and the Grand Prize, which is the All-Around category. Our work to the project with the greatest environmental, social, and economic impact. The COSACO is also among the 11 finalists in two categories. These awards and nominations are not only a great sign that we are making a strong and impactful contribution, but also outstanding platforms that allow us to continue educating consumers and effectively communicating the benefits of this great product. Finally, I would now like to mention that I am extremely honored to represent Pacasmayo as a board member for the GCCA, the World Cement and Concrete Association, for the upcoming three-year period. I take this position with great appreciation, but also with an enormous level of responsibility that it entails. Latin American companies face a great ethical dilemma, as there is a pressing need to reduce carbon emissions and protect our planet, but also an equally pressing need to provide homes, adequate infrastructure, and overall development to our people. We cannot focus on one over the other. We need to creatively think of solutions that will target both issues. This is the only path to achieve true, and I mean true, sustainable development. I will now turn the call over to Manuel to go into more detail on financial analysis.

Thank you, Humberto. Good morning, everyone. As Humberto mentioned, our third quarter 2023 revenues were $516.7 million, a 6.7% decrease when compared to the same period of last year. Gross profit, however, increased 5.2%, achieving $174.6 million, mainly due to lower costs as we discontinued the use of imported clinker now that our new kiln is fully operational. Lower cost of coal, as well as higher average prices of cement sold. Consolidated EBITDA also increased despite the decreased revenues, reaching 128.9 million this quarter, a 3.2% increase when compared to the third quarter of 2022. For the first nine months of the year, revenues decreased 9.1% when compared to the same period of 2022, mainly due to the lower levels of public and private investments, as well as the negative impact of Cyclone Jaco during the first quarter of the year. However, gross profit was roughly aligned with the same period of the previous year and consolidated EBITDA decreased only 2.9%, mainly due to decreased revenues, partially offset by the lower cost mentioned above. Nonetheless, a VITA margin for the first nine months of the year increased 1.6 percentage points when compared to the same period of the previous year. Turning to operating expenses, administrative expenses decreased 5% in the third quarter of 2023 compared to the third quarter of 2022. This is mainly due to a temporary decrease in personal expenses, as well as lower third-party service. During the nine months of 2023, administrative expenses increased 2.9% compared to the nine months of 2022, mainly due to an increase in salaries in line with inflation as well as in software licenses. Selling expenses increased 2.9% during this quarter when compared to the same quarter last year, mainly due to an increase in web maintenance services During the first nine months of the year, semi-expenses remained in line with those of the same period last year. Moving on to the different segments, sales of cement decreased 4.2% in the third quarter of 2023 compared to a third quarter of 2022, and a 5.2% in the first nine months of the year when compared to the same period of previous year, mainly due to decreased demand from the self-construction segment. from the record level reached in the post-pandemic times. However, the gross margin increased 4.5 percentage points this quarter and 2.7 percentage points during the first nine months of the year when compared to the third quarter and nine months respectively, mainly to the cost optimization as we have now discontinued the use of imported clinkers, as well as lower costs of raw material, such as coal, and higher average price of cement sold. During this quarter, we are glad to report that sales of concrete, pavement, and mortar increased 3.4% when compared to the same quarter of last year, mainly due to an increase in sales of pavement, and as we began dispatches to the Pura Airport and other minor works. During the first nine months of the year, sales of concrete, pavement, and mortar decreased 16.2% when compared to the same period of the previous year, mainly due to the increase in public and private investment, partially offset by the work executed this quarter. Gross margin decreased 5.3 percentage points during this quarter compared to the same period of last year. and a 5.1 percentage point in the nine months of this year compared to the same period of last year, mainly due to a lower dilution fixed costs. Sales of precast material this quarter also decreased as public and private works are still at historical low levels. The decrease in sales was 18.3% when compared to the third quarter of 2022 and 31.9% during the first nine months of the year when compared to the same period of last year. Gross margin was still negative, mainly due to a low delusion of fixed costs, as precast demand has evolved for lack of private and public projects, as well as the effects of the flooding during the first quarter of the year. Net profit increased 4.1% this quarter, when compared to the third quarter of last year, mainly due to the cost efficiencies as we mentioned before, as well as a slight decrease in expenses. During the first nine months of the year, net profit decreased 3.6% when compared to the same period of 2022, mainly due to lower revenues partially offset by the important cost structure mentioned before. However, net margin for both the third quarter and the first nine months of the year increased 0.9 percentage points and 0.5 percentage points when compared to the third quarter and the first nine months of last year. In terms of debt, our debt to EBITDA ratio was 3.3 times, which is a level we expect to progressively decrease as we start paying the club deal and EBITDA increases since we currently do not plan to incur an additional debt. To summarize, this course of results has started to show the benefit of focusing on cost management and preparing for an improving demand environment. We are confident that we will still continue delivering positive results during the rest of the year. Thank you.

Thank you.

We'll move to the question and answer section. If you would like to ask a question, please press start to on your phone and wait to be prompted. If you're dialed in by web, you can type your question in the box provided or request to ask a voice question. We'll just wait a moment or two for the questions to come in. So we have a question from Eduardo Velasquez, who is a private investor. Excellent presentation. Three questions. Can you give us a dividend guidance? Number two, considering the extremely low stock price, are you evaluating a share buyback? And number three, are you considering to exclude or call back the investment share class stocks?

Thank you, Eduardo, for your comments and to answer your three questions. In terms of dividend policy, that is something for the board to decide. But I may say that our intention has been over the last years to keep the same level of dividend. So even though that's a board decision, that should be in line with past years. Number two, are we considering buyback? No. And the reason for it right now is that we have been concerned for many, many years about liquidity of the stock. And if we were going to do a buyback, that would only harm the low liquidity we already have. And number three, in terms of investment shares, many years ago we did a buyback. The company right now controls around 90% of the investment shares. And for the time being, we are not going to do any additional moves on that either.

Thank you. Just a reminder, if you have a question, please press star 2 on your phone and wait to be prompted. You can also request to ask a text question by web. We'll just wait another moment or two for any further questions to come in. We have another question. This is from Ernesto Sanchez from Prima. Given the finalization of the investment in the Kiln 4, how much capex do you expect onwards on a quarterly basis? Any specific reason for the decrease in personnel expenses and 3D party services for Q3 2023? And finally, do you expect to maintain similar SG&A expenses or a normalization for the next quarters?

Yeah, sure. I mean, I think Manuel mentioned that after till number four, we have no extraordinary CAPEX. So we're going to go back to what we call the sustaining CAPEX, which is around 100 million solids per year. In terms of the tendency of FDMA, I mean, we're always for cost optimization. So we're going to try to keep running a very tight chip. And can you repeat the last part of the question, please?

Yes, no problem. Do you expect to maintain similar SG&A expenses or a normalization for the next quarters?

Yes, that will be it.

Perfect. Thank you. Our next question comes from Bianca Venegas from Credit Corp Capital. Can you give guidance on dividends and capex for 2023? And what are you expecting in terms of market dynamics for the following months in terms of self-construction and public investments?

Yeah, like I mentioned before, I think dividends, even though it's a board decision and I always have to make that disclaimer, we should keep in line with the policy of the previous years. And CapEx, like I mentioned before, I mean, it should be around 100 million solids per year, which is sustaining CapEx. In terms of market dynamics, we are seeing, and we anticipated this in our last call, that the second semester will be much stronger. That's why the volumes in the third Q has been around 15% higher. We think we should close the year on the levels of the third quarter, and that gives us a very promising start for the next year. I think self-construction will remain strong as long as agriculture and fishing recovers in the North, and public investment will rally behind prevention jobs for a year.

Perfect. Thank you. Gerard Fort from AFP Integra asks, can you give us more detail about what's included in other operating expenses in this quarter?

Yes, thank you for the question. Basically, La Niña, because as Humberto mentioned, we're donating the construction of the bridge. So, basically, it's expenses of La Niña. We will have expenses this quarter and next quarter.

Okay, thank you. Gamze Alpar from Impera Capital asks, could you please elaborate on how you see demand for 2024?

That's a very good question, and I try to, it's very hard to predict when we have an economic and political environment that is so complicated in Peru, but we're mainly optimistic. I mean, we're going to probably close this year a little bit under 3 million tons for these patches, and hopefully next year we'll be able to jump back on the over the $3 million level. But like I said, I mean, it's all going to depend on how the country goes so far. I mean, the indicators for GDP growth and everything are not too optimistic, but I think we'll be fine.

Thank you. We have one more question from Marco Antonio Mejia Peñalba from Calpa. He asks, thank you for the presentation. My question is about what are the other operating expenses of 10.3 million in the income statement, please? Thanks.

Yeah, like Manuel mentioned, I mean, we are all about preventing risks. And since El Niño will be coming, even though it's going to be a medium-strike phenomenon, we have donated the La Niña bridges and roads and everything, and that's extraordinary operating expenses.

Perfect. Thank you. I'm not seeing any more questions, so I will now hand back to Humberto for closing remarks.

Thank you. We stand at a point in time when social, environmental, and geopolitical issues at the global level are becoming stronger and more recurrent. Although we may be tempted to feel as if these things are either happening far away from us or seem completely beyond our realm of action, the reality is that discontent and inequality are at the core of this conflict, and that can happen anywhere. The private sector is capable, extremely capable of deep transformational change that can help bridge those gaps. As a Peruvian cement company that operates locally, that recognizes its place in the global economy, we will continue to focus on evolving our business model so that it is capable of achieving the transformational change that we need to contribute towards a future that is fair, tolerant, resilient, and most of all, sustainable. I want to thank you all for your interest in our company, and as always, we remain sure to have any further questions. Thank you very much for your time today.

That concludes the call for today. Thank you, and have a nice day.