Cementos Pacasmayo S.A.A. (NYSE:CPAC) Q1 2025 Earnings Call Transcript

Cementos Pacasmayo S.A.A. (NYSE:CPAC) Q1 2025 Earnings Call Transcript April 30, 2025

Operator: Good day, ladies and gentlemen. Welcome to Pacasmayo’s First 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 will conduct the question-and-answer session. I would now like to introduce your host for today’s call, Mrs. Claudia Bustamante, Investor Relations Managing Director. Mrs. Bustamante, you may begin.

Claudia Bustamante: Thank you, Louis. Good morning, everyone. Joining me on the call today is Mr. Humberto Nadal, our Chief Executive Officer; and Ms. Ely 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 filings. With that, I’d now like to turn the conference over to Mr. Humberto.

Humberto Nadal: 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. This quarter, we saw a very solid recovery in revenues, up 4.8% year-over-year as a result of stronger demand for bagged cement as well as concrete for infrastructure projects. We did face some rain in March that impacted sales during that period, but we have already seen the signs of recovering. Therefore, we remain very confident that the positive momentum will carry through the rest of the year. Consolidated EBITDA was $134.7 million this quarter, a 1.4% increase when compared to the same period of last year, despite an increase in expenses related to our collective bargaining negotiations.

To optimize our time and resources, we negotiate collective bargaining agreements with our labor unions every three years. To help close these long-term agreements, we offer a higher bonus in the first year, which naturally increased expenses. Since 2025 marks the start of a new cycle, we are seeing that impact now, but it’s important to note that this effect evens out over the next two years. Turning on to the progress of our strategy. I would like to focus on the positive results achieved in concrete, pavement, and mortar this quarter, with an increase of 22.3% year-over-year, driven by the execution of three major infrastructure projects and a steady growth in pavement sales. We are currently supplying concrete for the Motupe riverbank defenses, and we have also started shipments for a large project in Yanacocha as well as the Tarata bridge.

These projects will continue over the next quarters, securing stable demand moving forward. But what’s most important is that these results are not the outcome of short-term actions. They are the solid result of a clear long-term strategy. Over the past few years, we’ve invested significant time and effort in prospecting and focusing on improving the products and services we offer. We knew that if we wanted to promote concrete over other materials, we needed to go back several steps, getting involved early, even before technical files were drafted, and showing decision-makers the true benefits of concrete and precast solutions. Using key technology, including IEA, we have been able to identify and tackle a much larger number of projects and therefore, generate a successful strategy to increase the use of concrete and concrete-based products for infrastructure projects.

This has allowed us to position ourselves as a preferred choice for infrastructure development in northern Peru. We are certain that this is just the beginning, and we are confident that the momentum will continue to build in the coming quarters. Finally, I would like to give you a brief update on the progress of our decarbonization strategy. We are fully aware that reducing the use of coal is key to achieving our medium and long-term goals. We have also to keep fundamentals in mind. Cement is a foundation for better housing, better construction, and better opportunities for millions of Peruvians who still live without proper homes or basic services. Our challenge is clear. We need to find cleaner alternatives without increasing the final price for those that need it the most.

One part we are very excited about is biomass. In Northern Peru, sugarcane is abundant, and its byproduct sugar brush offers great potential as a clean fuel. After successful lab tests this quarter, we advanced to a dozen-scale trials, and the results so far have been very, very promising. In parallel, we’re also moving ahead in the use of end-of-life tires and other waste-derived fuels, continuing to seek innovative solutions that protect both the environment and affordability in order to a sustainable economic, social, and environmental impact that our country needs. I will now turn the call over to Ely to get more detail of the financial analysis.

Ely Hayashi: Thank you, Humberto. Good morning, everyone. This quarter’s revenues increased 4.8% compared to our first quarter of 2024, mainly due to the increase in sales of bagged cement and concrete, and pavement, reaching PEN499.2 million. During the same period, gross profit increased 5.5 percentage when compared to the same period of the previous year, mainly due to a slight decrease in cost of raw material on top of the above-mentioned improvement in revenues. Consolidated EBITDA was PEN134.7 million this quarter, a 1.4% increase when compared to the same period of 2024, mainly due to the previously mentioned increased operating income, partially offset by some increased expense. Turning on to operating expenses. Administrative expenses for the first quarter of 2025 increased 22.4% when compared to the first quarter of 2024, mainly due to increased personnel expenses because of the union bonus.

In an effort to optimize time and resources, collective bargaining with our labor unions is performed every three years. As an incentive to close this multi-year agreement, we offer a higher bonus for the first year, therefore, increasing expenses. Selling expenses increased 18.8% during the first quarter of 2025 when compared to the same period of 2024, mainly due to increased advertising and promotion expenses as well as the union bonus mentioned before. Moving on to a different segment. Sales of cement increased 3.9% this quarter when compared to the same period of last year, mainly due to increased demand. Gross margin increased 2.6% during the same period when compared to the first quarter of 2024, mainly due to lower cost of raw materials such as coal and cement additives.

During this quarter, concrete, pavement and mortar sales increased 22.3% 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 other infrastructure projects such as river bank defenses, the Tarata bridge and the Yanacocha project. However, gross margin decreased 6.5 percentage points in the first quarter of 2025 when compared to the same period of last year. This decrease was mainly due to the execution of the Piura Airport project. There is a difference in exchange rate between the rate projected in the contract versus the real exchange rate as well as an increased cost related to the execution of the Piura Airport project as it extended 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. Regarding precast materials, sales increased 6.8% this quarter compared to our first quarter of 2024, mainly due to an increase in sales volume to the public sector. However, gross margin during the first quarter of this year was 1.8 percentage points lower than in the first quarter of last year, mainly due to a lower dilution of fixed costs as we consume our inventories during the first month of the year. Moving back to our consolidated results. Net profit increased 6.5% this quarter when compared to the same period of last year, mainly due to increased revenues and gross profit as well as an increase in other income and a slight reduction in financing expenses.

During the first quarter of last year, we had a one-off expense related to a reconstruction of the road that connects our quarry to the Piura plant. Finally, in terms of debt, our net debt-to-EBITDA ratio was 2.6 times, below the level obtained at previous quarter as we continue deleveraging. To summarize, this quarter’s 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, I will now open the call for questions.

Q&A Session

Operator: [Operator Instructions] So our first question is from Tunde Ojo from Harding Loevner. Is it worth continuing the sales of concrete pavement, precast and construction supplies when you barely make any money on it?

Humberto Nadal: Thank you, Tunde, for your question. The way we have to look at this is more from our overall company strategy. I mean we said it, and I think Ely mentioned it, building solution is a road we need to walk in. The reason right now, I mean, if you see at north, I mean, it’s 25% of local cement demand when it used to be 20% because we’re getting closer to end consumer in terms of bridges, in terms of airports, in terms of all sorts of solutions. Of course, I mean, at some point, the profitability may not be the best one. But in the end, we are selling cement in places we were not selling before. And also, you have to realize that when you talk about smaller margins, you’re talking basically about the concrete and some projects are small, but we are still making a pretty decent margin in terms of the cement.

So if we retire here, I think we will be giving up in a very solid presence of a — on the market that we’ve been for years and years defending. So, like I said, you have to look not only at the specific business. And also, I mean, when we talk about projects like Motupe, La Leche or Tarata Bridge, or Yanacocha, we have large concrete projects, then the markets will be there. Sometimes, I mean, the projects are smaller, so the markets may be not as we expected. But in the end, I mean, we remain confident that building solutions is the way to go ahead.

Operator: Okay. Thank you. Our next question comes from Natalia Leo from JPMorgan. Your line is open. Please go ahead.

Natalia Leo: Thank you. Hi, everyone. Good morning. Thank you for taking my question. I wanted to ask on the SG&A increase you mentioned due to the labor union bonus. I understand that it is for the rest of 2025. So, should we expect a similar year-over-year increase in SG&A in the coming quarters and thus maybe a flat EBITDA margin for the full year?

Humberto Nadal: Thank you for the question. I mean, what we have seen in this quarter is I mean we’ve had an exorbitant expense close to PEN9 million solid rate. This is a one-time off, so you’re not going to see it in the rest of the year. And what you’re going to see the EBITDA margin should be stable towards the rest of the year.

Natalia Leo: Okay. Thank you. Can you repeat the impact, how the amount in soles or dollars, I don’t know what you mentioned.

Humberto Nadal: Sorry, I mean, I think — let me rephrase what I asked. I mean the 9.2% is solid, but this is a provision that’s going to be stable. I mean still the rest of it is going to be done for the rest of the year. What I was trying to say is this will happen only in the course of this year. The next — I mean, year and year after that, which there’s no new negotiations, then you’re going to see a lower amount. I know maybe my explanation was kind of confusing.

Natalia Leo: Okay. Perfect. Thank you.

Operator: Okay. Thanks. Our next question is from Gabriel Perez from CrediCorp. Given the infrastructure projects the company is working on right now, do you expect to maintain this level of concrete volumes for the whole of 2025? Are there any new infrastructure projects that could increase these volumes that you foresee in the future?

Humberto Nadal: I think the rest of the year, we’re going to see an increase in the concrete volumes because when we mentioned Yanacocha, some of the projects are just starting. They still need more traction so the volume demands will be higher in the rest of the year. Now, that being said, I mean, we still have a hope that the Mochica new phase that’s going to be a G2G will come sometime in this year. So I think, yes, if we were to look at the rest of the year, probably you’re going to see concrete volumes going higher for the remaining of the year.

Operator: Okay. Thanks. Our next question is from Marcelo from Itau. Your line is now open. Please go ahead.

Marcelo: Yes. Thank you. Hi, everyone, good morning. Thanks for taking the question. My question is related to capital allocation. So going forward here, I’d like to see as the company has this lack of new projects for the future years and leverage is under control. So I’d like to understand if you guys see dividends as an avenue for capital allocation here going forward also increasing the deleveraging story here. So this would be helpful. Thank you.

Humberto Nadal: Thank you. Like Ely mentioned, I mean, we have delivered, continue delivering compared to last year. And the path is going to be the same. We have — part of our obligations are a Club Deal with two banks here. I think we have five years remaining. So that’s going to mean the company will deliver in the coming years. As you said correctly, I mean, we have no big CapEx coming up. So the path is going to be to keep a solid dividend policy at the same time, lowering the debt.

Operator: Okay, thanks. Our next question comes from Gerard Fort from AFP Integra. Could you comment on the production and sale of lime? Going forward will you stop reporting this segment? Would it be included under others? What explains — perhaps you can take this one first and then we can go to the next question as there were three questions.

Humberto Nadal: The answer is yes. We’re going to continue the production of lime, even though in some years, it may be pretty immaterial, but we think our presence will remain there. The fact that it’s not been reported at some point has to do with the materiality of it, but we’ll continue the production of that as long as we see an opportunity. In terms of the CapEx, I think I mentioned before, we are fundamentally sustaining CapEx, which is around PEN100 million every year. That should be even out during the year. And in terms of advertising expenses, I mean we believe that the market is requiring for us to do a higher investment in terms of presence, in terms of marketing, in terms of all the events we do with our colleagues, and that’s why we reallocated a higher expense as we have normally been doing in the past. But that should be not so high in the coming, in the second part of the year.

Operator: [Operator instructions] So we have a question from Marco Mejia from Kallpa Security. Thanks for the presentation. We have seen a recovery in the dispatches year-on-year this quarter. Do you expect the trend to continue in the current quarter? What about the concrete dispatches? Do we expect a downward in the volumes next quarter?

Humberto Nadal: The answer is yes. I think we mentioned before, we’ve had a 5% year-over-year growth compared to same quarter of last year. And we think the rest of the year should keep this trend. Definitely, we’re going to see this year — at least we hope this year to close with a positive number in terms of growth, in terms of these projects. Talking about concrete, and I think I mentioned it before, as Yanacocha picks up more traction and other concrete projects come in, I think also concrete should have a very, very good year.

Operator: [Operator instructions] Okay. Looks like we have no further questions. Thank you, everyone, who participated. So perhaps I will now hand it back to the Cementos’ team for the closing remarks.

Humberto Nadal: Thank you. This quarter’s results show that our strategy to expand the use of concrete is paying off, allowing us to reap the expected benefits. By focusing on key projects, adapting to our clients’ needs and investing early in prospecting efforts, we’ve built a strong foundation for sustainable growth in demand for building solutions. Furthermore, we have taken key strategic steps to achieve real progress on decarbonization, finding new ways to reduce our environmental impact without compromising affordability because we know how important our product is for improving the quality of life of Peruvians. We will continue to push forward offering the best solutions and services to satisfy our clients’ needs while building a future where economic growth, social impact and environmental responsibility go hand in hand.

Thank you, everyone, for the interest in our company. Thank you for joining us this morning. And as always, should you have any further questions, our team will be always here ready to answer. Thank you very much. Have a great day.

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