Cementos Pacasmayo S.A.A. American Depositary Shares (Each representing five Common Shares)

Good day, ladies and gentlemen, and welcome to Pacas Mayo's third quarter 2024 earnings conference call. At this time, all participant lines are in listen-only mode, and please note that the call today is being recorded. At the conclusion of our prepared remarks, we will conduct a question and answer session. I would now like to introduce you to our host for today's call, Mrs. Claudia Bustamente, Investor Relations Manager. Mrs. Bustamente, you may begin.

Thank you, Michael. Good morning, everyone, and thank you for your patience. Joining me on the call today is Mr. Humberto Nadal, our Chief Executive Officer, and Mr. Manuel Ferreiros, our Chief Financial Officer. Mr. Nadal will begin our call with an overview of the quarter, focusing primarily on our strategic outlook for the short and medium term. Mr. Ferreiros will then follow with additional commentary on our financial results. We'll then turn the call over to your questions. Please note that this call will include certain forward-looking statements. These statements relate to expectations, beliefs, projections, trends, and other matters that are not historical facts and are therefore subject to risks and uncertainty that might affect future events or results. Descriptions of these risks are set forth in the company's regulatory filings. With that, I'd now like to turn the call over to Mr. Humberto Narres.

Thank you, Claudia. Welcome, everyone, to today's conference call. and thank you for joining us today. My apologies for the delay as I was landing on a place. This quarter, we delivered very solid results in terms of margins, EBITDA, and profitability. Say at volumes, this quarter recovered on a sequential basis, although still slightly behind the same quarter of 2023. Besides this wide-reaching demand, we were able to achieve a record consolidated income of $154.6 million, an increase of almost 20% year-over-year, as well as a remarkable increase of 35.9% in net income. By basically focusing on operational efficiencies related to pre-care production in our most efficient kiosks, as well as cost efficiencies in our source of raw materials. In our journey to continue developing our building solutions, this quarter we have embarked on two very relevant projects. First, we designed an innovative solution for riverbank protection. As you probably already know, the north of the river is consistently affected by aluminum, resulting in strong rains that overflow the river and therefore cause significant flooding. Traditionally, this riverbank protection is done with steel and rocks, and if there are parts of the north where rocks are not really available, we designed a new solution using mainly cement, local materials, and mortar that is both most cost-effective and more durable. We are currently implementing this in Lambayeque, and the solution is scalable, and we look to expand it to other areas. Secondly, we are taking on a new challenge, a collaborative agreement and vector cooperation in the construction of a water treatment plant at the Minera Yalacocha operation. The treatment of acidic water in mining is absolutely crucial for environmental sustainability, and that's being able to maintain a balance between economic and social development in our country. Proper management of water resources not only minimizes the environmental impact, but also generates efficient use of the natural resources we have today, preserving them for future races. These key projects are other examples of how we are innovating and adapting our products and services to satisfy the current and potential demand for building solutions. Always, and I want to say always, with a scientific view and aligned with our purpose. I would like now to focus on something that is absolutely crucial for the future of our business, including our own, artificial intelligence and machine learning. New technologies will bring a wide variety of opportunities, and there's no doubt that early adopters will be the biggest beneficiaries. Pacamayo's AI strategies have been crafted to a multi-phase approach, starting with a very deep understanding of your business and its needs. A robust operational and educational model was designed to incorporate an expansion of a deepening strategy, capabilities assessment, and a clear governance model. Implementation of roadmap focus on three key fronts. Preparing the organization for AI adoption, experimenting with AI solutions, and expanding the impact of AI across the enterprise. The strategy has resulted in high engagement and satisfaction with 86% of employee participation and an 84% rate of satisfaction. We also developed seven successful pilot projects, including a product prediction model, a commercial virtual assistant, and an automatic bag and content system. Overall, we must say that this challenge has also allowed us to prioritize these cases across various departments and positively impact the value chain. Because not only do we have tangible results, but it has also led the foundation for Pakistanis to become truly, and I mean truly, data and AI-driven companies. The next steps involve defining the scope and resources of food, space, and sanitation in 2025, further submitting that the highest position as a leader may be adopted within the industry. I would now like to turn over to Manuel to go into a more detailed financial analysis.

Manuel? Thank you, Humberto. Good morning, everyone. This quarter, revenues increased 0.2% compared to the third quarter of 2023, reaching $517.8 million. However, during this same period, gross profit increased 12.1% when compared to the previous year, mainly due to the cost efficiencies throughout our operations, including our new kiln in Pacasmayo, as well as lower cost of raw material, mainly coal. Consolidated EBITDA was a record of $154.6 million this quarter, and EBITDA margin was 29.9%, a 19.9% and a 5 percentage point increase, respectively, when compared to the same period of 2023. The trend was similar for the first nine months of the year, with revenues increasing 0.9%, Consolidated EBITDA, 12.3%, and EBITDA margin, 2.8 percentage points when compared to the same period of last year. Turning to operating expenses, administrative expenses for the third quarter of 2024 increased 15.4% and 6.7% during the nine months of this year when compared to the same period of the previous year, respectively. mainly due to an increase in personal expenses as a result of increased workers' profit sharing and higher IT, research, and cybersecurity-related expenses. Selling expenses during this quarter increased 10.7% and 10.4% during the first nine months of the year when compared to the third quarter of 2023 and the first nine months of 2023, respectively. mainly due to an increase in personal expenses mentioned before. Moving on to different segments, sales of cement decreased 2.7 percent this quarter and 3.6 percent during the first nine months of the year, when compared to the same period of 2023, respectively, mainly due to a decrease in demand from the sales construction segment. Nonetheless, due to our continued focus on efficiency, Gross margins increased 7.3 percentage points in the third quarter of 2024 and 5.5 percentage points in the first nine months of this year, when compared to the third quarter of 2023 and the first nine months of last year, respectively, mainly due to a cost optimization and lower cost of raw material mentioned before. During this quarter, concrete pavement and mortar sales increased 25.6% and 57.9% during the first nine months of the year, when compared to the same period of 2023, mainly due to increased sales volume as pavement for the Pura Airport project. Gross margin decreased during the quarter and first nine months of the year, mainly due to a difference in exchange rate between the projected rate at the time that the contract was signed and the current rate. Most of this, in fact, was already being accurate for so we expect the margin to improve in the upcoming quarters. Sales of precast materials during the third quarter of 2024 and the nine months of 2024 increased 10.4% and 31% compared to the third quarter and first nine months of 2023, respectively. mainly due to increased demand from the public sector for the construction project, among others. Moving back to our consolidated results, net profit increased 35.9% this quarter and 11.9% during the first nine months of the year, when compared to the same period of last year, respectively, mainly due to an increase in operating profit, as mentioned before. In terms of debt, our net debt EBITDA ratio was 2.8 times below the level obtained the previous quarter. To summarize, this quarter's financial results show our ability to manage costs and focus on efficiencies to provide outstanding profitability. We are confident that we will continue delivering positive results during the rest of the year. Can we please... open the questions.

Thank you very much for the presentation. We'll now be moving to the Q&A part. You may press star 2 on your keypad. That's star 2 on your keypad for any voice questions. If you are dialed in via the web, you may also ask a text question. And we also acknowledge the text questions already asked by Mr. Luis Ramos and Mr. Marco Mejia, which we'll get to in a moment. So just once again, star two for any voice questions. That's star two. You may also ask a voice or a text question if you are dialed in via the web. Our first voice question comes from Mr. Marcelo Furlan from Itaú, B.A.

My question is related to better momentum going forward. And also, if you guys could What can we expect here in terms of margins or settlement margins for some of those markets for the medium and long term here?

So these are my two questions. Thank you.

Excuse me, we couldn't hear the question at all. There was a lot of interference. I'm not sure if you could ask the question again.

...is going to replace in volume the dispatches to the project at Pura Airport.

Hello.

Hi, Claudia.

Hello, yes?

Yes, hi, Claudia. So just once again, we will try to get in touch with Mr. Marcelo from Itaú BBA. He's reconnected with the telephone line. Mr. Marcelo?

Yes, hi, guys. Can you hear me now?

Yes. We can hear you loud and clear. Please go ahead, Mr. Marcelo.

okay thank you guys sorry for the the interference before so guys i have two questions here the first one is related to cement volumes so we saw these volumes increasing by 16 percent on a quarter to record the basis and in the in the my questions here is you guys see actually these cement volumes in peru on a better momentum versus what we have seen in the first half of this year so This is my first question here, and then a follow-up on that. How are you guys seeing cement volumes grow for 2025? So this is my first question. My second question is related to margins. You guys reached this 30% margin in the Turkey, and cumulative numbers for 2024 is around 28. So my question here is related to if you could expect now cementosargos with these margins or sustainable margins, hovering around 30% or close to that. So could we expect these margins going forward? So this is my second question here. Thank you, guys, and I'm sorry for the interference before.

Let me take that question. Relating the volumes, I mean, we are seeing an increase in the third quarter. We anticipated when our call in the second quarter that the second part of the year would be better. We're seeing increased government spending in many things, And next year, we are still running on the budget. We have to bear in mind that there are very important public projects going on in the north. They need to have a mochic phase that's going to be done under a G2G agreement with the Canadian government will be under go. So I think we're paid off the message that next year, volumes should increase with respect to this year. We don't have a specific number right now. In terms of the margins, I think the increase we have seen has to be most of the operational efficiencies with our nucleons and everything. So I think going into the future, they should remain.

Okay. Thank you so much, guys.

Okay. Thank you very much. We will now be reading out the text questions. The first text question is from Mr. Marco Mejia from Taupa SAB. How long is it going to impact the new project of Yanakocha to the dispatches of the concrete? Is it going to replace in volume the dispatches to the project at Pura Airport? Could you repeat the question, please? I couldn't hear it. Yes. First question is, how long is it going to impact the new project of Yanakocha to the dispatches of the concrete? Is it going to replace the volume of the dispatches to the project at Pura Airport?

I can take this question.

Go ahead, Manuel. Yeah, I can take this question. Yeah, the... This project will last approximately 18 months, and the volume is going to be quite similar as the one that we've been using in the Pura Airport.

Okay, thank you very much. The next question is from Mr. Luis Ramos from Lorraine Vial. Hi, Humberto, Manuel, and Claudia. Congrats on the results. I have three questions. I'll read the first one. First one, regarding the volume dynamics. What are your expectations for 2025?

My expectation, like I mentioned before 2025, we should see an increase in volumes compared to 2024.

Which are the drivers that should enable growth in self-construction?

The driving self-construction are fundamentally two. One, I mean, employment is very important, and I think the fishing and agriculture are extremely important for employment in our region. Fishing has had a tremendous year, and so has agriculture. So I think the big driver towards self-construction is the fact they want to have thousands of people very well employed and very well paid, and that recently translates into cement demand later in the year.

Okay, thank you. The follow-up question from Mr. Luis. Regarding prices, it seems that there's room for price hikes seems limited. What do you expect for the price mix improvements in 2025?

I think, I mean, there's no such thing as a limited space for price hikes. We're always very cautious about price in terms of taking care of the brand, in terms of profitability, and in terms of market share. And I think we've done a tremendous job in the past of maximizing price, bearing in mind the other two variables, and we're going to keep on the same position.

A follow-up question for Mr. Luis. EBITDA margins hovered almost 30% this quarter. What is your guidance on margins for next year?

The guidance for next year should be A VITA margin for the whole year should be a little bit over 29%.

Okay, thank you very much. We have a text question from Mr. Gerard Ford from AFP Integra. A few questions. Congratulations on the results. Number one, we have seen an improvement in gross margins throughout the year. However, this quarter's improvement has been above the improvement seen in recent quarters. While this is attributed to the efficiencies at the Pacas Mayo plant and lower coal costs, this has also been the case in previous quarters. Could you comment on what has been the main driver for this quarter's improvement?

The main driver here, I mean, operational efficiency is something that we keep pushing. So every trimester is an opportunity to keep increasing. I mean, you have to realize, I mean, there's always a process of learning. The nuclear number four now is really running like a, like a fantastic ship, and in terms of coal, I mean, we also achieved interesting prices, and all those things translate to the fact of inputs and decreases.

The second question from Mr. Ford is related to the long-term expected margins for concrete and prefabricated products. Given that there is an effort to expand the participation of these businesses,

I think concrete profitability is going to have to do a lot with the size of the projects. I mean, when we get a Chavimochik in hand, when we get a Yanacocha achievement plant in hand, those things are much more profitable than small concrete operations. As we see, our public and private investment is hopefully picking up in the coming years and the value of concrete to increase accordingly.

Okay, perfect. Thank you very much. Just once again, star two for any additional questions, star two for any voice questions. You may also ask a voice or a text question if you're dialed in via the web. We'll give a minute or so for any final questions to come in. Okay, so it looks like we have no questions at this point. I'll pass the line back to the management team for the concluding remarks.

Thank you. I would like to finish.

Bartók, are you there?

yeah sorry i would like to finish my briefly sharing we do that last week i had the chance along with several other latin american ceos to visit three projects in europe currently at the forefront of carbon capture Although the reality of Europe is clearly very different from that of Latin America in terms of regulatory framework, economic incentives, research availability, and funding, it is nonetheless very gratifying to see such concrete steps towards carbon neutrality in the examinee industry. We are grateful for the opportunity to continue our learning journey in this field, consisting with our... And I need to stress needs of our country. I think the balance is going to be between protecting the environment, between carbon neutrality, and being able to provide to those 2 million people without a home and home for the future. With this, thank you very much. We are new leaders in our company. And as always, should you have any further questions, we will remain here at your disposal. Thank you very much. Have a very good day.

Thank you very much. This concludes today's conference call. We'll now be closing all the lines. Thank you, and good