Cementos Pacasmayo S.A.A. Q1 2024 Earnings Report

Cementos Pacasmayo S.A.A. EPS Results

• Actual EPS: $0.16
• Consensus EPS: N/A
• Beat/Miss: N/A
• One Year Ago EPS: N/A

Cementos Pacasmayo S.A.A. Revenue Results

• Actual Revenue: $126.85 million
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Cementos Pacasmayo S.A.A. Announcement Details

• Quarter: Q1 2024
• Date: 4/29/2024
• Time: N/A
• Conference Call Date: Tuesday, April 30, 2024
• Conference Call Time: 10:30AM ET

Cementos Pacasmayo S.A.A. (NYSE:CPAC), a cement company, produces, distributes, and sells cement and cement-related materials in Peru. It operates through three segments: Cement, Concrete, Mortar and Precast; Quicklime; and Sales of Construction Supplies. The company's cement and concrete products are used in residential and commercial construction, and civil engineering; ready-mix concrete used in construction sites; concrete precast, such as paving units or paver stones for pedestrian walkways, as well as other bricks for partition walls and concrete precast for structural and non-structural uses; and cement-based products. It also produces and distributes quicklime for use in steel, food, fishing, and chemical industries. In addition, the company sells and distributes other construction materials manufactured by third parties, such as steel rebar, plastic pipes, and electrical wires. It offers its products directly to other retailers, private construction companies, and government entities through a network of independent retailers and hardware stores. The company was incorporated in 1949 and is headquartered in Lima, Peru. Cementos Pacasmayo S.A.A. is a subsidiary of Inversiones ASPI S.A.

Cementos Pacasmayo S.A.A. Q1 2024 Earnings Call Transcript

[Operator]

Good morning, ladies and gentlemen. Welcome to Pacasmayo's First Quarter 20 2Q 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 a question and answer session.

[Operator]

I would now like to introduce your host for today's call, Mrs. Claudia Bustamante, Investor Relations Manager. Mrs. Bustamante, you may begin.

[Speaker 1]

Thank you, Tim. Good morning, everyone. Joining me on the call today is Mr. Humberto Nadal, our Chief Executive Officer and Mr. Manuel Ferreiro, our Chief Financial Officer.

[Speaker 1]

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. Ferreiro will then follow with additional commentary on our financial results. We'll then turn the call over to your questions.

[Speaker 1]

Please note that this call will include certain forward looking statements. These statements are related 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. Humberto.

[Speaker 2]

Thank you, Claudia. Welcome, everyone, to today's conference call, and thank you for joining us today. This quarter, we delivered very solid results in terms of margins, EBITDA and profitability. Although sales volumes continue to lag behind because of demand side challenges, we were able to achieve a consolidated EBITDA of $132,800,000 a 10% solid increase year over year as well as a 13.8% increase in net income by focusing on operational efficiencies related to crinker production in our most efficient kilns. Northern Peru was impacted by climatic effects such as higher temperatures and increased water temperatures, which in turn affected agriculture and fishing.

[Speaker 2]

For example, mangoes, one of the main crops in Northern Peru, experienced a drastic decrease in production during the 2023, 2024 agricultural campaign. This translates into decreased disposable income, which in turn affects self construction. Additionally, there is a general lack of safety in the country, specifically in the northern part of Peru, mainly in the form of extortions that are affecting overall economic activity, including, and I would say, especially self construction. We hope that these demand side challenges can be reverted, and we are confident that when they do, we're in the best possible position to tackle the resultant increase in demand. In our journey to continue developing our building solutions, we recently embarked on the reconstruction of a 2 runway and the perimeter fence of the Pura Airport, not only as a concrete and pavement provider, but for the first time directly involved in the construction as part of the consortium.

[Speaker 2]

The way in which we approach this project is different from our improvement projects. We have provided concrete for in the past since we are, in this case, actively participating in every step, beginning with prospects and ending with the actual delivery of the finished infrastructure project. We firmly believe that our involvement in every path in every part of the process brings invaluable insights and creates significant opportunities to promote improved market operating solutions looking towards the future. I would like now to focus on something that is absolutely crucial for the future of all businesses and organizations, including our own, artificial intelligence and machine learning. New technologies will bring a wide variety of opportunities, and there is no doubt that early adopters will be the biggest beneficiaries, and we intend to be 1.

[Speaker 2]

As a company, we're focusing on both developing and adopting digital tools and reinforcing the culture to adapt them. As I mentioned earlier, one of the ways in which we look to gain traction on the Building Solutions market is by doing protection work. This is mostly focused on looking for infrastructure opportunities in the initial phase so that we can get involved in the definition of our materials required, hence creating and capturing more value for our building solutions. We have recently developed a model that uses AI to identify all of the value infrastructure projects in our area of influence. The robot developed in this project can capture the information and feed it into a large database, allowing the team to focus on actual development of the solution instead of spending valuable time scouting for projects.

[Speaker 2]

Moreover, this tool generates valuable information to guide our data driven analysis that will help us enhance our portfolio of products as a service provider and tailor to the needs of our customer. I will now turn the call over to Manuel to go into more detailed financials.

[Speaker 3]

Manuel? Thank you, Humberto. Good morning, everyone. As Humberto mentioned, our Q1 2024 revenues were affected by a decrease in demand, reaching 476,500,000 a slight decrease of 0.7% when compared to the same period of last year. However, the gross profit increase, achieving BRL 173,900,000, an 8 0.3% increase when compared to the same period of last year, mainly due to reduced production costs as we maximize the use of our most efficient yields and benefit from lower cost of raw material.

[Speaker 3]

The consolidated EBITDA was $122,800,000 this quarter, a 10% increase when compared to the Q1 of 2023. And EBITDA margin was 27.9%, a 2.8 percentage points increase when compared to the Q1 of 2023. Turning to operation expenses, administrative expenses for the Q1 of 2024 remained in line with those of the Q1 of 2023. Selling expenses during this quarter increased 9.1% when compared to the same period of last year, mainly due to increase in personnel expenses, in line with inflation as well as software and licenses and higher provision for the doubtful payment. Moving on to a different segment.

[Speaker 3]

Sales of cement decreased 4.6% this quarter when compared to the same period of 2023, mainly due to a decreased sales volume in the self construction segment, mainly because of the negative corporate effects as well as low levels of private and public investment. Nonetheless, gross margin increased 5.2 percentage points in this quarter compared to the same period of last year, mainly due to lower clinker production costs associated to the use of most efficient fuel as well as the lower cost of coal. During this quarter, concrete, pavements and mortar sales performed very well, increasing 73.8% compared when compared to the Q1 of last year. This increase was mainly due to the increased sales of payments for the Piura Airport. Gross margin decreased by 2.5 percentage points this quarter when compared to the same period of last year, mainly due to changes in the composition of our sales for Tafoku.

[Speaker 3]

Finally, the net profit increased 13.8% this quarter when compared to the same period last year, mainly due to the operational efficiency mentioned above. In terms of debt, our net debt to EBITDA ratio was 3.2x, which is a level we expect to reduce in the future. To summarize, this quarter's results show our ability to manage costs and focus on profitability when faced with challenges on the demand side. We are confident that we will continue delivering positive results during the rest of the year. Operator, can now please open the floor for questions?

[Operator]

Yes. Thank you, Manuel. We will now move to the question and answer section. Our first question comes from Natalia Leao from JPMorgan. Your line is open.

[Operator]

Please go ahead.

[Speaker 4]

Thank you. Hi, everyone. Thank you so much for taking my question. I actually have 2. So I was wondering if you could tell us a bit more on your expectations for volumes for the full year.

[Speaker 4]

I remember last quarter you mentioned a low single digit increase, but just wondering if maybe your expectations are down a bit considering how they were in this quarter, so maybe flat or down? And the other one was on gross margins. So you had like 44% gross margin this quarter. Just to understand if that's the normalized level you expect for the full year or should it be closer to the 47% that we saw in the Q3? So thank you.

[Speaker 2]

Thank you for the question. The first part of the question, I mean, we have always experienced seasonality in our demand, and we remain confident that especially public expenses should pick up in the second semester of this year. We also think that the security issue should be tackled in the coming months. So yes, we think we are optimistic that the 2nd semester of this year will bring better volumes to the table and that should counteract the decreasing volumes out of the 1st part of the year. And concerning margins, we think that the margin we mentioned today in this call are the ones that should be sustainable looking to the future.

[Speaker 1]

Great. Thank you.

[Speaker 4]

If I could just follow-up. So do you see volumes increasing sequentially in the second half of the year?

[Speaker 2]

Yes, that's the case. I mean, if you see our last 4, 5 years, it's usually the case and we think this year there's no reason why it should be different.

[Speaker 4]

Great. Thank you.

[Operator]

Okay. Thank you. Our next question comes from Marcelo Forlan from Itau. Please go ahead.

[Speaker 5]

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

[Speaker 2]

Yes. Glad to hear you. Okay.

[Speaker 5]

Thank you. So guys, my question is related to capital allocation. I mean, following the conclusion of the Q4 of last year, now the company doesn't have any major projects underway. So I'd like to know in terms of capital allocation, if you guys thinking about distributing the dividend to shareholders, thinking on shareholders going forward. And also to the financial leverage, you guys had this 3.2 times the financial leverage.

[Speaker 5]

So if you guys have plan to increase the financial leverage going forward and what would be a sustainable financial leverage for the company? So these are my questions. Thank you.

[Speaker 2]

Thank you. The first part of the question are, I mean, the level of dividends is for the board to decide. That being said, and me being part of the board, I mean, the idea, philosophically has always been that the cash that the leftover cash should go to shareholders. I think over the last year, we've had a very consistent dividend policy. And the way we look at it right now, I mean, probably that consistency will go on towards the end of this year.

[Speaker 2]

And regarding the leverage level, as you know, I mean, we finished Kiln number 4 last year. We don't foresee any substantial CapEx in the coming future. We have structured our debt in a way that we have a club deal with 2 main banks in Peru, and we're going to be lowering the debt over the next 4, 5 years according to that club deal with the banks.

[Speaker 5]

Okay. Thank you so much guys. Thank

[Operator]

you. Our next question is a text question from David Cuenca from Compass Group. David asks, thanks for the presentation. I would like to know if you have some insights about prices of cement for this year and maybe for next year and if you have some info about other projects like the Piura Airport. Thank you.

[Speaker 2]

Thank you. I mean, we've been monitoring carefully the price situation. And if you see even though our cement sales in terms of tons are lower, our revenues remain almost flat. And I think we've had a very successful managing of prices. We will continue to monitor the situation.

[Speaker 2]

It's always a fine line between keeping a substantial market share at a same time profitability. So that is just an ongoing situation. We always got to look for a way to maximize profit. And in the case of the question about the Pira project, I mean, there's some more efforts coming on the line, not this year, but they come in few years. We are strongly convinced, like I mentioned in my speech, that the learning curve for the Piraeus Airport will help us in the other airports.

[Speaker 2]

Also, the Chavimotri next phase will should go ahead in the probably towards the end of the year. There's a D2G government agreement between Peru and Canada, and that should go and probably keep green light to the infrastructure project. Those are the 2 main things I think. Other than that, we still think that the private investment remains pretty low.

[Operator]

Thank you, Humberto. We also have a question, a tax question from Marco Mejia from CALPA who asks, could you give us please some insights about coal prices? Thank you.

[Speaker 3]

Hello, Marco. Yes, coal prices now are stable at a range of, I would say, around $2.50 per ton. So we expect the stable price at least this year.

[Operator]

Okay. Thank you. We'll just give it another 10, 20 seconds or so to see if there are any final questions. Thank you. I'm not seeing any more questions, so perhaps I can hand it back to Humberto for closing remarks.

[Speaker 2]

Thank you. I'll say that current political and financial market conditions have unfortunately, I may add, maybe less attractive to invest in Latin American companies. That being said, we remain firm believers in the great potential that both our company and our country hold for the future. The 2 tests of a successful company strategy comes during those times where market conditions are very favorable. And I think we have been consistently delivering very good results over the last years.

[Speaker 2]

We will continue to focus on our strategic goals, reinforcing digital transformation, developing and empowering more and more our talent and operating our business responsibly. By doing this, we are absolutely certain that we will not only continue delivering positive results today, but be ready to re up further benefits when market conditions improve. Thanks, everybody, for a renewed interest in our company. And as always, we remain at the disposal if you have any questions in the future. Thank you very much.

[Operator]

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