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

Good day, ladies and gentlemen. Welcome to PAKA Smile 3rd Quarter 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode and please note that this call is being recorded. At the conclusion of our prepared remarks, we'll conduct a question and answer session. I would now like to introduce your host for today's call, Mrs. Claudia Bustamante, Investor Relations Managing Director. Ms. Bustamante, you may begin.

Thank you, Rafael. 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 would 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 filings. With that, I'd now like to turn the call over to Mr. Indeco Harris.

Thank you, Claudia. Welcome everyone to today's conference call and thank you for joining us today. I would like to start with a quick overview of our results for the quarter. We continue to see solid momentum in sales volume with a 9% increase compared to the same period of last year. These goals were driven mainly by stronger demand from infrastructure projects and a consistent performance in the self-construction segment. Cost profit increased by 14.4%. reflecting the impact of our ongoing efforts to improve cost efficiency and service and profitability. These efficiencies transfer in the bottom line growth, as net income also increased 14.4% this quarter, reaching $71.5 million solid this quarter, and a very solid accrued growth of 15.6% for the first three months of this year. Moving on to the progress of our strategy, we continue to be at the forefront when it comes to advancing innovative building solutions. developing those that promote more efficient, safe, and sustainable construction. A prime example of this is an industrial hangar that integrates prefabrication and beam methodology, technologies identified by the World Economic Forum as having the greatest transformative potential for our industry. This strong combination allows us to significantly reduce execution times, ensure operational and community continuity, and minimize waste and strengthen the safety of our teams. In the same spirit of innovation and collaboration, we are working closely with Newmont and Bechtel Corporation in the construction of a water treatment plant at the Yanacocha operation. Treating acidic water in mining is essential for environmental sustainability, helping maintain a balance between economic development and responsible use of natural resources. By ensuring proper water management, we not only reduce environmental impact, but also preserve resources for future generations. Both of these projects are clear examples of how we are adapting our products and services to meet current and future demand. Always, and I stress, always with a client-centric view and aligned with our purpose. Our reputation is not built on words, but on actions. And this year, we once again demonstrated our consistency and purpose truly make a difference. For a third consecutive year, we proudly ranked among the top ten companies in the Merkle Corporate Reputation Ranking. a recognition that affirms our commitment to responsible, transparent, and always ethical management. Reputation, after all, is simply the result of what we do every day. We're confident that these positive results are only the beginning, that the momentum we've built will continue to strengthen in the coming quarters, because ultimately, our long-term success stems from a simple conviction, doing what's right for our clients, our communities, especially for our country. I will now turn the call over to Eli to get into a more detailed financial analysis.

Thank you, Humberto, and good morning, everyone. This quarter's revenues increased 10.9% compared to a third quarter of 2024, mainly due to the increase in sales of concrete and pavement for infrastructure projects, as well as back cement, reaching 574.1 million soles. During this same period, gross profits increased 14.4% when compared to the same period of the previous year, mainly due to a decrease in cost of raw material, on top of that mentioned higher revenues. Consolidated EBITDA was 160.6 million soles this quarter, a 3.9% increase when compared to the same period of 2024, mainly due to the previously mentioned increased operating income. For the first nine months of the year, revenues increased 7.3% when compared to the same period of 2024. Gross profits during this same period also increased 10.5% when compared to the same period of 2024. mainly due to lower cost of raw materials, higher consumption of our own finger, as well as the operational efficiency derived from our maintenance and production plan. Likewise, EBITDA increased 4.6% when compared to the same period in 2020. Turning on to operating expenses, administrative expenses for the first quarter of 2025 increased 20.2% when compared to a third quarter of 2024. Likewise, administrative expenses for the first nine months of the year increased 18.7% when compared to the same period of the previous year. This increase was mainly due to higher personal expenses because of the union's bonus. Selling expenses increased 25.5% during the third quarter of 2025 and 24% during the first nine months of the year when compared to the same period of 2024, respectively. This increase was mainly due to higher advertising and promotion expenses. a part of our commercial strategy focusing on our product attributes as well as the union bonus mentioned before. Moving on to the different segments, sales of salmon increased 10.4% this quarter when compared to the same period of last year, mainly due to increased demand. Gross margin increased 1.6 percentage points during this same period when compared to the third quarter of 2024, mainly due to lower cost of coal and energy. For the first nine months of the year, results were similar, with sales increasing 7% and gross margin increasing 2.5% when compared to the same period last year. During this quarter, concrete, pavement, and mortar sales increased 26.3% when compared to the same period in 2024, mainly due to increased sales of concrete for infrastructure projects such as Atarata Bridge and the Yanacocha Water Treatment Plant. Gross margin increased 2.6 percentage points this quarter when compared to the same period of 2024, mainly due to higher dilution of fixed costs. For the first nine months of this year, sales of concrete, pavement, and mortar increased 19.5 percentage, mainly due to increased demand for infrastructure projects. However, gross margin decreased 2.3 percentage points in the first nine months of the year when compared to the same period of last year. Regarding precast materials, sales increased 23% this quarter, when compared to a third quarter of last year, and 11.6 during the first nine months, when compared to the same period of 2024, mainly due to a strong increase in sales of favors, the most profitable product within the precast line. Gross margin this quarter and during the first nine months of the year was higher by 5.6 and 1.3 percentage points, respectively, compared to the same period of 2024. Moving on to our consolidated results, net income for a period increased 14.4% this quarter, when compared to a third quarter of 2024, and 15.6% during the first nine months of the year, when compared to the same period of 2024, primarily due to higher operating income, lower interest payments due to debt amortization, and a favorable foreign exchange rate effect. Finally, in terms of debt, our net debt to EBITDA ratio was 2.5 times as we continue to deliver because of both higher EBITDA and debt amortization payments. To summarize this quarter, we continue delivering solid financial results, making the most of our favorable market conditions while managing costs in order to achieve profitability. Operators, can we now open the call for questions?

We're ready for questions.

Thank you. Thank you very much for the presentation. We'll now move 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. We have our first voice question coming from Marcelo Furlan from Itaú BBA. Marcelo, please go ahead. Your line is open.

Hi, everyone. Good morning. Hi, Humberto. Hi. Thanks for taking my question. I have two. The first regarding volumes and the second one regarding capital allocation. For volumes, you guys mentioned in the release that you guys expected an accommodation at least until April 10th and 6th ahead of the federal elections. So I'd like to understand what to expect in terms of some of the volumes' performance in the country and also for the company for them. And also what to expect after that. Do you guys still have an expectation or maybe it's worth to say after the elections, how could unselected volumes in Peru evolve? My second question regarding capital allocation is, what has driven the CapEx deployments to date, and what could expect for in terms of CapEx for 2026? And also, there will be dividends. Could we see maybe similar dividends or even yield levels as we saw announced in October around 80%? So could expect, you know, CLS for 2026? So these are my questions. Thank you.

Marcelo, thank you. I'm going to try to answer your questions, even though the line was kind of on and off. So I'm trying to figure out your questions. I'm going to try to answer. If I don't, please, you can try again to ask. In terms of volumes, this year has been very positive. I think the north part of Peru is growing above the national average, which is pretty flat. But we think that the remaining quarter of this year should see the same level of activity. I mean, we mentioned Yanacocha, we mentioned Tarata, self-construction, they all seem to be pretty strong. When you, and in general, there's a concern about the elections upcoming this year. I think we've had seven presidents over the last eight years. We've had many elections going left, right, up, down, whatever. And it seems that 80% of the informal economy of Peru doesn't really care much about that. So we don't see really an impact of the election. We have a recently sworn in president that is pushing very strongly for the regional governments to spend the money they have left for the remaining part of the year. I read today that 50% is the normal. At this point, being nine months of the year, only 50% of the budget has been spent in regional governments. So I don't see the electoral situation affecting too much either self-construction or infrastructure projects. I don't really quite heard your second part, but I think it had to do with debt. If not, please correct me. Like Ellie mentioned, we keep lowering our debt, both because we are paying the club deal, that is, we have four or five years remaining, and also because EBITDA keeps being at a higher level. Like I say, communication was poor. If you want to refresh your question, we can try again.

Yes, thank you. The first question was answered. The second was actually related to the complex deployments to date, so we'll have to review such complex deployments, and what was expected of the complex for 2026. And the second part of the question is regarding differences, could this scale or did many expect for 2026, as we saw now announced in October? Thank you.

Once again, I don't know what's wrong with the polls, If I do with CAPEX, I mean, our sustaining CAPEX has remained around 100 million soles, which is roughly around $30 million over the last two, three years, except for 2021 when we did kill number four in Pacas Mayo. That level should remain pretty steady. And I don't know if your questions have to do with dividends. I mean, we just announced a dividend last week in line with previous years, even though probably net profit will be up 50%. in a double-digit period for the rest of the year. We remain, we decided, the board decided to keep the dividend at 190 million soles. I think in line with what Eli was mentioning, keep lowering the debt at the level one, and I think it's a reasonable dividend yield, and keeps everybody pretty much happy, and the company financially very solid.

Okay, thank you so much.

Okay, thank you. Thank you very much. So, we are moving to the next question, which is a text question from Cesar Huimani from Renta4Banco. Thank you for your presentation. Considering that electoral cycles often lead to a pause in private investment and shift in public spending priorities, how are you adjusting your commercial and operational strategy to sustain volumes and margins in an environment where project execution may temporarily slow down? Do you see opportunities to gain market share if other players reduce their activity?

Cesar, I mean, with all respect, I mean, I differ here in your view of what happens in Peru in electoral periods. I think over the last periods, companies, private sector have learned that, I mean, we have to keep going. We have to keep going. I just had a chance to write an article, it will be published a week from now for the National Academy Association, saying that private sector, and I mean the small entrepreneur all the way to the big corporation like us, we cannot stop. The country keeps growing, the country keeps growing. We have elections every five years, but we change presidents on average every three years. So we have to keep going, and I think this is part already on the decision-making process of companies. I mean, you see Tia Maria going ahead. You see many announcements happening over the last 60, 90 days, and they're going to go all across the nation. Nobody's really waiting for the outcome of the March elections because If you have a leading position, no matter what is your industry, if you decide not to invest, somebody else will do it. And in terms of opportunities to get market share, I mean, we fight for market share every single day, where it's election time or no election time, and it is basically the same as Eddie mentioned. We have increased market expenses because we defend fiercely our position in the market, but that is very independent of whether it's an election or not in the short term.

Okay, thank you. Thank you very much. Our next text question comes from Giovanni Sanchez from Prima AFP. Could you explain the extraordinary increase in financial income to $8.7 million? Next question, please. Next question, okay. The next text question comes from Mariana Goni from Credit Corp Capital.

I'm going to take a note here, and there's a question from Giovanni Sanchez saying, could you explain the extraordinary increase in financial income to 8.7 million in CQ25. Any guidance? Okay. That increase has to be fundamentally because we want to try, we have to not over-mining royalties. This lasted, I think, over 10 or 12 years, and that meant an extraordinary income for us, and that's why the financial income changed. Any guidance for the last part of the year? Like I said, I think volume should remain strong. Usually seasonality helps us in the second part of the year, so we're doing that. And in terms of 2026, a little bit too soon to tell, but we're optimistic that we will be seeing another year of growth next year.

Okay, thank you. Thank you very much. Our next question.

The next question, I think, from Marian Goni from Critical Capital. I answered the first part. In terms of margins for 2026, I think the margins should remain steady for the coming year, even though volumes are going to grow. Relating the AC&A, there's two things here. We're going to keep being very strong in terms of marketing expenses, because there's increased competition. We like to defend our solid market share, and like Kelly mentioned before, in terms administrative expenses this year because we signed the three-year union contract, there's a higher impact of the bonus we give our workers when we sign the agreement. In the coming years, there's still a little part of it, but the amount would be lower.

Okay. Thank you.

Apologies for... And the last question from there, from Integra. Looking ahead, do you plan to maintain this level of marketing and promotional spending for this year to the next year? Like I said before, I mean, this is, we'll see what is the, there's always a plan for us, but we always act depending on what the competition does. We'll have to see what is the impact, what they're doing, but yeah, we are very happy with the levels of this year. We have to bear in mind that we have increased our marketing expenses, and our net profit is up 15%. So that's the idea. I mean, it's not so much how much we spend in marketing, but it's really paying off our strategy, and As far as he pays off, we will probably keep along the same lines. We're going to give one more minute in case somebody else has any additional questions.

There's a time on my mind there.

For anyone still wanting to ask a question, please press star 2 on your phone keypad, star 2 on your phone keypad. If you would like to ask a question. Thanks, everybody.

We have some technical issues. This is our first call we have done like a self-service, like a McDonald's drive-thru. And to close this, I would like to take a moment to thank you for your continued confidence and interest in our company. Peru was in need, faced many challenges and changes in the last decade. But progress is never a matter of chance. It's a matter of choice. It relies on the conviction of those who believe and continue to build, even in difficult times. And we are among those. CEMENT embodies that conviction, turning belief into roads, homes, and opportunities. Those of us who believe in the outstanding potential this country holds cannot step back, cannot be on standby. It is our responsibility to move forward, to invest, to innovate, and to keep building its future. Thank you so much for your time today. And should you have any questions in the future, you know where to find us. Thank you and have a nice day.