Cementos Pacasmayo S.A.A. (NYSE:CPAC) Q3 2022 Earnings Call Transcript

Cementos Pacasmayo S.A.A. (NYSE:CPAC) Q3 2022 Earnings Call Transcript October 26, 2023

Humberto Nadal Del Carpio: [Call Starts Abruptly] different organizations. We are extremely proud of this achievement since Pacasmayo is the only company in the top ten that does not have a national presence. We truly believe it 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 the company communicates and projects over time. Therefore proper reputation depends on the actual activities and 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, a new forecasting 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 [indiscernible] 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 brick styles. In addition, two detours are currently being built to provide transit continuity to the 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 a 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 our execution capacity, will lead us to restore full transit according to our schedule. As we have previously mentioned, this year we launched the EcoSaco, 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 what we are both glad and proud that the EcoSaco won the Semana Económica ESG Sustainability Prize this week, both in the sustainable product innovation category and the grand prize, which is the all-around category, awarded to the project with the greatest environmental, social, and economic impact. The EcoSaco is also among the 11 finalists in [indiscernible] LatAm 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 Global Cement and Concrete Association, for the upcoming two-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 and this is the only path to achieve true and I mean true sustainable development.

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Q&A Session

I will now turn the call over to Manuel to go into more details on financial analysis.

Manuel Ferreyros Peña: Thank you, Humberto. Good morning, everyone. As Humberto mentioned, our third quarter 2023 revenues were PEN516.7 million, a 6.7% decrease when compared to the same period of last year. Gross profit, however, increased 5.2%, achieving PEN174.6 million, mainly due to lower costs as we discontinue 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 PEN128.9 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 lower levels of public and private investments, as well as the negative impact of Cyclone Yaku 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, EBITDA 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. And 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 increased web maintenance services. During the first nine months of the year, selling 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 the third quarter of 2022, and 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 due to the cost optimization, as we have now discontinued the use of imported clinker, as well as lower cost of raw materials such as coal and higher average price of cements 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 for the Piura airport and other mining 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 an increase in public and private investments 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 the 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 of fixed costs.