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

2025 Earnings Conference Call. At this time, all participants are in listen-only mode. And please note that this call is being recorded. At the conclusion of our prepared remarks, we will conduct a question and answer session. I'll now like to introduce the host of today's call, Mrs. Claudia Bustamante, Investor Relations Managing Director. Mrs. Bustamante, you may now begin.

Thank you, Luis. Good morning, everyone. Joining me on the call today is Mr. Humberto Nadal, our Chief Executive Officer. and Ms. Eli Hayashi, 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. Ms. Hayashi 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 uncertainties that might affect future events or results. Descriptions of these risks are set forth in the company's regulatory filing. With that, I'd now like to turn the call over.

Thank you, Claudia. Welcome, everyone, to today's conference call, and thank you for joining us today. I would like to begin with a brief overview of this quarter's results. We saw an extremely solid recovery in sales volume, up 7.1% year-over-year, as a result of stronger demand for cement as well as concrete, mostly for infrastructure-related projects. Consolidated EBITDA was 130.2 million this quarter, a 9% increase when compared to the same period of last year, despite the increase in expenses related to our collective bargaining negotiations. The performance this quarter reflects our disciplined execution and alignment with our strategic objectives. Turning on to the progress for our strategy, I would like to focus on the steady growth in infrastructure projects this quarter and throughout the year. It is crucial to understand that despite more than three decades of sustained economic growth, Peru still faces a significant infrastructure and housing deficit. As a leading provider of building solutions, we are deeply aware of our role in addressing this challenge by delivering high-quality products and services, but more importantly, those that improve the quality of life and applicability of our clients, we are not only supporting infrastructure development, but we are mainly driving economic growth and social inclusion. Cement is more than just a building material. It's a synonym for progress. There is no sustainable economic or social development without infrastructure, and we all know that. People need proper housing, access to markets, education, and health services. And all of that begins with solid, resilient infrastructure. The Oras por Impuestos, or Work for Taxes program, is an innovative program mechanism that enables private companies to finance public infrastructure projects in advance of their income tax payments, receiving in exchange tax certificates. This is an excellent mechanism to contribute to national development by executing those projects that have already been prioritized by local governments, but have not yet been carried out mainly due to limited execution capabilities. This has also proven to be one of the most effective platforms for showcasing the benefits of concrete and building solutions in our area of influence. The roles we built for Impuestos have already proven their resilience, with stunning severe climate events such as El Niño and Cyclone Yaku. These underlines not only the technical advantage of concrete and proper building techniques, especially in areas prone to heavy rainfall, but also, and mostly, the long-term value of building resilient infrastructure. We are very proud to be among the top five contributors to this program, and this year alone, we are committed over $100 million through it. It's an extremely powerful example of how public-private collaboration can accelerate impact. While we demonstrate the quality, durability, and efficiency of our concrete solutions, we also help improve connectivity, unlock economic opportunities, and support regional development. Of course, None, and I want to stress, none of these achievements will be possible without our people. For the seventh consecutive year, we're recognized as a top-ranked cement company in the American Talent Index and ranked 19th overall across all industries. Talent remains our greatest competitive advantage, our greatest challenge, and this recognition reflects our commitment to attracting and developing the best professionals in the market. We are confident that these positive results are just the beginning. and the development we continue to build in the coming quarters. We remain extremely optimistic about the future of our country and the future of our market. I will now turn the call over to Eli to go into more detail on our analysis.

Thank you, Humberto. Good morning, everyone. This quarter's revenues increased 5.9% compared to the second quarter of 2024, mainly due to the increase in sales of packs of men, concrete, and pavement, reaching $484.1 million so far. During this same period, gross profit increased 11.2% when compared to the same period of the previous year, mainly due to the increase in cost of raw materials on top of the above-mentioned higher revenues. Consolidated EBITDA was $130.2 million this quarter, a 9% increase when compared to the same period of 2024, mainly due to the previously mentioned increased operating income. For the first six months of the year, revenues increased 5.3% when compared to the same period of 2024. Gross profits for the first six months of the year increased 8.2% when compared to the same period of the previous year, mainly due to the efficiency derived from our annual maintenance plan, as well as lower cost of raw materials. Likewise, EBITDA increased 5% and EBITDA margins remain in line for the first six months of the year when compared to the same period of 2024. Turning on to operating expenses, administrative expenses for the second quarter of 2025 increased 13.8% when compared to the second quarter of 2024. Likewise, administrative expenses for the 36th month of the year increased 17.9% compared to the same period of the previous year. This increase was mainly due to higher personal expenses because of the union's bonuses. In an effort to optimize stamps and resources, collective bargaining with our labor unions is performed every three years. As incentives close this multi-year agreement, we offer a higher bonus for the first year, therefore increasing expenses. Selling expenses increased 28% during the second quarter of 2025, and 23.2% during the first six months of the year, when compared to the second quarter and first six months of 2024, respectively. This increase was mainly due to higher advertising and promotion expenses, as well as the unique bonus mentioned before. Moving on to different segments, sales of cement increased 6.3% this quarter, when compared to the same period of last year, mainly due to increased demand. Work margin increased 3.2 percentage points during this same period, when compared to the second quarter of 2024, mainly due to lower cost of cementitious materials. For the first six months of the year, results were similar, with sales increasing 5% and gross margin increasing 2.9% when compared to the same period last year. During this quarter, concrete, pavement, and mortar sales increased 9.8% when compared to the same period in 2024, mainly due to increased sales of concrete and pavement for the Piura Airport project, as well as for other infrastructure projects, such as Riverbank Defenses, the Tarata Bridge, and the Llanacocha project. However, gross margin decreased 3.2 percentage points in the second quarter of 2025 when compared to the same period of last year. This decrease was mainly due to the execution of the Buda Airport project. This is a difference in exchange rate between the rate projected in the contract versus the real rate exchange rate, as well as increased costs related to the execution of the Buda Airport project, as it expanded over our planned execution period. We remain confident that developing building solutions is the right path for our company, even if it entails some short-term learning curve additional costs. Likewise, for the first six months of the year, concrete pavement and mortar sales increased 16.1% and gross margin decreased 4.8% when compared to the same period last year. Regarding precast materials, sales increased 4.1% this quarter and 5.3% during the first six months of the year, were compared to the second quarter and the first six months of 2024, respectively, mainly due to an increase in subvolumes to the public sector. However, gross margin this quarter and during the first six months of the year was lower by 1.5 and 1.6 percentage points, respectively, compared to the second quarter and first six months of 2024, respectively. Moving back to our consolidated risk, net profit increased 29.9 percentage this quarter, when compared to the same period of last year, mainly due to increased revenues and gross profits, as well as a reduction in financing expenses, as we decreased our debt levels and therefore reduced our interest payments. During the first six months of the year, net income increased 16.5% when compared to the same period of last year. Finally, in terms of debt, our net debt to EBITDA ratio was 2.6 times, a level we feel very comfortable with. To summarize, These quarter financial results show our ability to benefit from better market conditions while managing costs in order to achieve profitability. We are confident that we will continue delivering positive results during the rest of the year. Operator, can we now open the call for questions?

Thank you. We'll now be moving to the question and answer section. If you'd like to ask a question, please press star two on your phone and wait to be prompted. If you're dialed in by the 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. Okay, so our first question is from Marcelo from Itaú. Your line is now open. Please go ahead.

Hi, everyone. Good morning. Can you hear me?

Yes, we can hear you.

Okay, thank you so much. So, guys, I have two questions here. It's related to the second half. So, what are your expectations for volumes going forward? So, should we expect the same trend as seen in the first half with this from mid to high single-digit increasing volumes for Pacas Mayo? And my second question is related to CapEx. We have seen the company disbursing this around 300 million solid per quarter as CapEx. So I just would like to see what is your expectation for CapEx for the second half of this year, and also if you could break this down between maintenance CapEx and growth CapEx to be helpful as well. So these are my two questions. Thank you.

Thank you, Marcelo. In terms of volumes, we think the trend will remain. Single high digits, I think it's going to be a trend for the second part of the year. It's going to depend greatly on how infrastructure projects unveil. And we have things like the Tarata, La Leche, Motupe, that sometimes you're supposed to start in August and they start two months later. But in general, I think it's very positive. I think the trend should remain. And in terms of the CAPEX, We've been stating that at this point, we are not involved in any substantial increase of capacity. Our sustaining capacity is around 100 million solids every year that is dedicated to our three plants and all our ready-mix plants. And we have a small initiative of capex, only $2 million, but nothing really substantial during this year or the coming years. We are in terms of capacity at 70-something percent, so we are ready to engage in increased demand without increasing capex.

Okay, thank you so much, guys. If I just follow up here a little bit, in terms of, you know, as you guys are expecting this high single-digit for volume increase for the second half, what could expect for margins here? Maybe could expect some EBITDA margin improvement versus the first half, or do you believe maybe margins would be flattish versus the first half? And if I may, just one final question related to dividends. As you guys mentioned that you don't have any expectations of a huge growth process going forward. So what are the company's expectations for dividend distribution maybe for 2025?

So in terms of the EBITDA margin, it should remain between 28% and 29%. And in terms of dividends, I mean, this is a decision that's usually made at the board and the shareholder level. But, I mean, we've been, over the last year, very consistent at the dividend level. And this year we see no reason to change. And if anything, as I said in the past, The company policy has been always that the excess cash belongs to shareholders. I think there's higher chances that it may go higher than going lower, but for sure, I think it will remain at the same level up to these years.

Okay. Very happy to talk. Thank you so much, guys.

Thank you. Our next question is from Omar Avellaneda from Vinci Compass. Good morning, and thanks for the call. I just have one question. We just recently saw Cemex used Chiang Kai ports to import cement. Does this infrastructure change competitive dynamics in the Peruvian market?

I think of the question. I think Chiang Kai is a great port. It's a great news for the country. You have to bear in mind that Chiang Kai is very close to Lima. I mean, if you talk about dynamics in our market, I mean, we're much more influenced by any changes that will happen in the Salaberry or the Pita port. That being said, yeah, every new port may change a little bit dynamic, but really associated to the areas close to the port. I mean, if you ask me, I mean, is it going to influence the south? No. Is it going to influence the north? The Shanghai port? Maybe a little bit, but it's fundamentally focused into Lima. Shanghai is a relative to the Kayao port.

Thank you.

I'm sorry. One of the reasons they used Shanghai in the same case was because for technical reasons, Kayao was not available at the given point of the ship coming into the country. I know in the future they will repeat the same port.

Thank you. Just a reminder, if you'd like to ask a question, please press star two on your phone and wait for the prompt. And if you're dialed in by the web, you can either type your question in the box provided or request to ask a voice question. We'll wait a few moments for any new questions to come in. Okay, looks like we have no further questions. I will now hand it back to the CEMENT team for the concluding remarks.

Thank you. This quarter's performance reflects the strength of our long-term strategy and our ability to execute with purpose. CEMENT is at the core of Peru's development. It has a principle of housing, safer roads, and more connected, inclusive communities. We firmly believe that poverty is one of the greatest threats to the environment. Without access to economic opportunity, and basic infrastructure is difficult for communities to invest in sustainability. That is why our work goes beyond building materials and focuses on enabling a more equitable, resilient, and sustainable future for all. We have started in great manner the first semester of this year, and we are convinced the second semester will follow, and we will post, hopefully, record results for this year. Thanks to everybody for the continued interest in our company. And as always, if you have any further questions, we'll always be here. Thank you.

This concludes the call. Thank you, and have a nice day.