Humberto Nadal - CEO Manuel Ferreyros - CFO Claudia Bustamante - Head, IR.

Pablo Ricalde - Bank of America Hernán Kisluk - MetLife Dario Valdizan - Onyx Francisco Suarez - Scotiabank Antonio Hernández - Barclays Omar Rodríguez - Credit Suisse Daniel Sasson - Itaú BBA.

Good morning. Welcome to the Cementos Pacasmayo Third Quarter 2016 Results Conference Call. With us today are Humberto Nadal, Chief Executive Officer; Manuel Ferreyros, Chief Financial Officer; and Claudia Bustamante, Head of Investor Relations. As a reminder, all participants will be in listen-only mode.

Before we begin, please take note that this conference call includes forward-looking statements based on currently available information. Forward-looking statements inherently involve risks and uncertainties that could cause actual results to differ materially from those predicted in such forward-looking statements.

Statements made on this conference call should be considered together with cautionary statements and other information contained within the Company’s earnings release dated October 24, 2016 and within the most recent regulatory filings for discussion of those risks. I will now turn the call over to Ms. Claudia Bustamante, Head of Investor Relations.

Please go ahead ma’am..

Good morning and thank you for joining us today for our third quarter 2016 results conference call. On the call with me today is Mr. Humberto Nadal, Chief Executive Officer; and Mr. Manuel Ferreyros, Chief Financial Officer. We’ll begin with our review of Cementos Pacasmayo’s third quarter 2016 performance and will then open the call for your questions.

Please note that today’s call is being recorded and that the content of this call cannot be reproduced in whole or in part without the Company’s consent. I will now turn the call over to Mr. Humberto Nadal, Chief Executive Officer..

Thank you, Claudia. Good morning, everyone. We appreciate you joining us today, as we discuss our results for third quarter of 2016. Our provided results continued to strengthen sequentially.

And while from operational standpoint we made meaningful progress during the quarter, we also took some of the important strategic steps this quarter in line with management focus on ensuring value creation for our business and for our shareholders.

In this regard, we announced during the quarter that are Board of Directors approved the separation of Pacasmayo cement operations from our ownership of phosphate project, which was approved at our shareholders meeting on September 26.

Our first FOSPAC ownership will be transferred to a new company called FOSSAL to trade independently on the Lima stock exchange.

Phosphate company, FOSSAL, is distinguished by the considerable size of its reserves, its strategic location and the participation of the Mitsubishi corporation, supported by the ever-growing need for fossil-based fertilizer to address robust [ph] demand.

On the other hand Cementos Pacasmayo’s high-quality operations makes this company an industry leader serving increasing cement demand in Northern Peru. We therefore now have two strong standalone companies ensuring valuation of each respective business.

This, we’re convinced, will better unlock value, enabling investors and analysts to value each business based on their respective company, opportunity and performance of two distinct but growing markets. Needless to say we’re pleased about this decision and the opportunity it represents.

We expect the spin-off to conclude before the end of the year and we will share to keep the financial community updated as developments unfold. Turning now to our operating results.

This quarter, our results underscore further efficient production and further [ph] operational excellence, our leadership position supplying Peruvian cement market is resonating. Gross margin was up a 0.5 percent point, EBITDA margin expanded by 2.4 percentage points and net income margin rose by 3.4 percentage points this last quarter.

The Piura plant is now fully operational on clinker production. Boosting our capacity and our margins, our total clinker production volume increased by just over 94% during the third quarter compared to the same period last year, completely replacing imported clinker with Piura clinker.

We also operated with a benefit of strong market conditions; our construction demand is at an upward curve. Further, our new President Pedro Pablo Kuczynski continues his first term in office; he has vowed to kick start the slowing economy, a key pillar of which is to roll out infrastructure project as a means of boosting growth.

President Kuczynski’s government has already submitted a bill to congress that will define his 2017 budget. Apoyo Consultoría, a leading Peruvian advisory firm, also noted that he’s ready to begin the tender process on 50 public works projects already approved as by our prior government.

Along the above, we’re translating to private -- or have translated into private sector optimists and overall business confidence from which Pacasmayo expects to benefit in the future. Regarding the construction spending, we continue providing cement for our three large projects that are in execution.

To provide you with some updates, as of September 30, 2016, just under 70% of total cement needed has been shipped at the Talara Refinery. At the Chavimochic Project, 38% of the total demand for the project has been shipped and just over 50% in the case of Longitudinal de la Sierra Highway.

Recently, shipments for two more infrastructure projects began, the El Potrero Hydroelectric plant and the Alto Piura irrigation project.

We also expect shipments from the Huacrachuco-Sausacocha Highway and the New City of Olmos to begin in the near future, which implies we should have sustainable and continuous infrastructure spending looking to the future.

In conclusion, it has been another good quarter characterized by strong results and positive developments and the steps we’ve taken to streamline our operations and that with our focus on delivering continuous shareholder value and operational excellence. Let me now turn the call over to Manuel, who’ll provide more color on our financials..

Thank you, Humberto. Good morning, everyone. Third quarter 2016 revenues slightly increased to 314.2 million.

The gross profit saw a decrease of 5.5% to 133.3 million in the third quarter of 2016 compared to 141.1 million in the third quarter of 2015, impacting gross margin by approximately 260 basis points, resulting from an increase in depreciation from the Piura plant.

However, gross profit has increased vastly, 50 basis points from the second quarter 2016 to the third quarter of 2016. Profit for the period decreased 21.7 during the third quarter 2016 compared to the third quarter 2015, mainly due to the termination of borrowing costs capitalization and increased depreciation from the Piura plant.

The sales of cement, concrete and blocks were down 0.2% during the third quarter 2016 compared to the same period of 2015, due to extraordinary demand increase in the third quarter of 2015, as a result of El Niño related investments. We saw a slight decrease in gross margins in the third quarter of 2016 when compared to the third quarter of 2015.

Our gross margin has been increasing quarter-on-quarter from 39.7% in the first quarter of 2016 to 47% in the third quarter.

Sales of concrete increased 43% year-over-year, reflecting a significant increase in demand, mainly from infrastructure projects as well as the Company’s successful pricing policy, which resulted in a 3.8 percentage increase in gross margin as well.

Moving onto operating expenses, operating expenses for the quarter came in at 58.5 million down 1.2% from the third quarter 2015. Administrative expenses were down 11.7% to 45.4 million, primarily driven by lower personnel expenses which were offset by an increase in selling expenses by 21.7% to 10.1 million, on increased advertising and promotions.

Consolidated EBITDA which we feel is the best measure of our performance, increased 4.9% to 104.5 million in the quarter compared with 99.6 million in the third quarter of 2015. Looking briefly at results for the first nine months of 2016, we saw positive comparison across key metrics.

Revenues were up 5.2%, consolidated EBITDA increased 1.8% in the first nine months of 2016 compared to the first nine months of 2015.

Excluding the 8.8 million of income from the sale of real estate assets in the second quarter of 2015, consolidated EBITDA would have increased 5.1% in the first nine months of 2016 compared to the first nine months of 2015. Administrative expenses were down 4.4%, mainly driven by lower personnel expenses.

At the profit level, we’re adjusting for the [indiscernible] of second quarter 2015 from the sales of land.

On this basis, net income decreased 29.9% year-over-year, mainly to the lower gross profit in the first quarter of 2016 and the termination of borrowing cost capitalization and increased depreciation following the conclusion of the Piura plant project. Our balance sheet remains very strong.

We ended the third quarter of 2016, with 174.6 million in cash and cash equivalents and the net debt to adjusted EBITDA ratio of 1.9 times. CapEx during the first nine months of 2016 was 90.7 million soles.

To summarize, we are seeing the results of improved operation and efficiency from the Piura plant in the third quarter of 2016, as evidenced by our strong EBITDA margin improvements. I’ll now turn the call back to Humberto for closing comments..

Thank you, Manuel. Looking ahead, we have a positive view on our business and the cement industry as a whole. We also expect to take advantage of exciting market development as our new President builds out his plans to reinvigorate Peru’s economy and infrastructure.

We look forward to stronger years to come and we’re also very aware that we’re still in as transitional from a government to the next. Let may now turn the call to questions.

Operator?.

[Operator Instructions] And we can take our first question from Pablo Ricalde with Bank of America. Please go ahead. Your line is open..

I have two questions, if I may. The first one is, which is your targeted depreciation rate for Pacasmayo plant, now that Piura plant is up and running and the second one is regarding public spending.

I was wondering if you have seen any significant changes on public spending trends with the new President?.

The Pacasmayo plant has gone down since beginning of the Piura plant. And we’d expect the Pacasmayo plant should be operating as a percentage of around -- cement around 40% and clinker should be around a little bit over 60%..

And regarding the second part of your question, I mean I mentioned in my closing remarks, we’re -- I believe today it’s 100 days of the new government. We’re still in a transition period. And there is a lot of optimism around the government policy of spending. But so far, we’re still in the optimist phase.

We’ve not seen any concrete impact as of today..

And our next question comes from Hernán Kisluk with MetLife. Please go ahead..

I have actually two and they both relate to the free cash flow generation for the quarter. In the financial statements, we see there was a large increase in accounts payables, but I don’t know if maybe the dividend we paid in the last quarter is behind us or some clarification on that would be great.

And also if you could help us and walk us through how to build the free cash flow generation for this quarter?.

Yes, basically the increase in the payables -- dividends that we announced in the last -- I think was in September, in the Board meeting of September and it’s going to be paid through the 20 of November..

Regarding the free cash flow, could you help us to visit for the last quarter, because there’re differences between the management report and the cash flow that you presented and as far as half of the year regarding the capital expenditures?.

Can you repeat the question, because I don’t remember we have presented any cash flow projections for the quarter?.

No, no, not a projection, just for the last quarter?.

The annual free cash flow before dividends is around $75 million to $80 million. We expect it’s one quarter of that for the last quarter..

And our next question comes from Owes Salman [ph] with Prima AFP. Please go ahead..

Well, as we could see in the third quarter, the Company showed high quality results, low leverage, low CapEx, now that capacity expansion is complete, more other prospects for cement demand are positive. So my question is would you consider increasing dividend payout ratio..

Like Manuel mentioned, I mean our Board approved dividend of $50 million I believe a month ago and that should be paid during this coming month of November. I think it’s a very high dividend payout. We’re repeating the same payout of last year and for -- of course for the remainder of the year, no more dividend payout.

I think the Board will have to review next year to see what we’ll do with dividend but, yes it’s been pretty stable over the last years..

[Operator Instructions] We can go to Dario Valdizan with Onyx. Please go ahead..

I just got a quick question regarding the gross margins for cement. Last year in the third quarter was about 51.4% versus the 49.9% we’ve seen this quarter. Granted volumes are down 6.4%.

I just wanted to get a sense if these margins were directly related to the decreasing volumes or also they have a mix explanation meaning that the cement there was done for the expansion of the projects -- I am sorry, for El Niño were at a higher price and therefore that is what affected also margins?.

Basically the impact Dario has been the depreciation of the Piura plant..

Go ahead, sorry..

Basically the difference is the depreciation of the Piura plant that impacts the gross margins directly every quarter..

Okay. So, just so I understand, the decrease in gross margins year-on-year of 150 basis points is because the cement you were using last year was more expensive..

Manuel is trying to explain, I mean first, all the cement we sell and we’ve stated this in the past I think we have only one price. And what we are saying there has not been -- has been no change in that. What has changed is that now we have Piura plant fully up and operational.

And now all the deprecation and the interest expense of that plant is in our G&A. [Ph] And that’s why it impacts directly the gross margin..

And our next question comes from Francisco Suarez with Scotiabank..

Two questions, one relates with the operations. And to what extent ready-mix, the pick-up in the ready-mix operations has or not has to do to potential government spending at the state level? And secondly a follow-up on the cash flow and your overall dividend policies.

It seems to me that the overall free cash flow that you guys are generating is improving a lot, judging for what I’ve seen in this quarter.

So, the questions that I have is to what extent or perhaps rephrasing it, what are your policies in general towards return on equity or using dividends as one policy to correctly have the ROEs that you may have in mind? Or in another words, to what extent, if this trend continues, the balance sheet continues to strengthen that ultimately may affect negatively your ROE.

So, I just want to know if that is actually concern or not for you guys? Thank you..

I take the first part on the ready-mix. And as I said before, I mean so far what we’re seeing in the ready-mix is mostly private investment. I mean we have not seen a substantial pick-up on public spending, either the central or the regional government. We’re very optimistic about it, but it’s still in the transition phase.

I mean we have to see what this government has to offer. Regarding the second part of your question, and I think, I’ve also discussed it in the past. I mean we’re very concerned primarily on ROE and we’re following, I mean we’re happy to generate a bundle of cash.

There is no need for that cash or no really a good way to put in the Company that belongs to shareholders, and of course that would improve the ROE. So, that is something, and I think it relates to the question we heard before regarding dividend to you. Recall, we used to give around $30 million, since last year we were up to 50.

And this is something experimentally [ph] revised by the Company to really make the optimal use of cash. And does nothing to be [indiscernible] in the Company. I strongly believe that will have shareholders but that is a decision that is up to the Board..

Thank you. And our next question will come from Antonio Hernández with Barclays..

One question regarding the phosphate project spinoff. Could you give please more color on how will that influence growth? And if you have any estimates on margins and any other impact for the Company? Thanks..

With the decision of spinning off the phosphate project, this would have absolutely no effect and future impact as well, because it’s going to be a separate company. Like I said before, this should be completed by the end of the year.

So, there would be absolutely no impact in the future in the cement margins, in any relation with the phosphate project; it’s going to be now completely independent..

And is the Company considering any other -- any further spinoff or anything related?.

Not for the time being..

And our next question comes from Omar Rodríguez with Credit Suisse. Please go ahead..

So, my question is regarding the EBITDA margin. We already saw this quarter a substantial improvement. And I was just wondering what your expectations are for the next year in terms of perhaps additional boost in margins. And particularly, it seems we saw that in clinker utilization in Piura plant it’s almost at 100%.

So, I’m not sure if you see additional upside in margins from any other front?.

We said in the past that with still up and running the margins will be around 34%. And what’s going happen next year, it’s going to be great [indiscernible] volumes. And really, we’ve been working heavily on efficiency the last two, three years.

And although there’s always room for further efficiency, I mean I think we’re running out of new initiatives there. So, I think the margins should remain around that number. But it’s going to be great business volumes in the future..

[Operator Instructions] We’ll go next to Daniel Sasson with Itaú BBA. Please go ahead..

Actually my first question is related to a follow-up on a previous question on the phosphate project, on the spinoff. I remember that when you hosted a conference call to discuss the spinoff, you mentioned that you were still looking for private partners to inject equity in the project.

Do you have updates on this front that you can share with us, how the talks or negotiations are going? And my second question would be related to specifically to the New City of Olmos.

I remember that in the second quarter, you basically mentioned that -- well it’s a project basically being built from scratch, and it was expected to generate nearly 150,000 tons of cement demand over the next two or three years, but that this number could increase meaningfully if the next stages of the project are approved, so just wanted to know if you have any updates on this front as well?.

You’re absolutely right, I mean in the case of FOSSAL and the phosphate project, we’re actively looking for an operating partner. We’ve nothing new to report at this time, at this point, but you’ve to rest assured that we’re actively looking for a partner. I mean I’ve been doing so for the last six weeks.

When something concrete comes up, of course we’ll report back to shareholders and the markets. And regarding Olmos, this is absolutely an emblematic project, we’re talking between 150, like you mentioned and it could be up quarter of a 1 million tons. It is still in the bidding process for the basic -- the floors and the pavements and everything.

Nothing has been yet started so far. We think I mean it’s part of what I was saying before, I still think we’re waiting for the kick of this new government. And hopefully -- and I know for Olmos it’s at double. [Ph] So by the beginning of the next year we should probably start shipping cement into that..

And it does appear we have no further questions. I’ll return the floor to management for any closing remarks..

Thank you. I want to thank everybody for joining our conference. I think it’s always very important for us, not only to sure ourselves but to address every question, everything that market may want with us. [Ph] Thank you for the time. We’re very confident about what we have achieved so far.

We’re very happy that we’ve reached the EBITDA margin we promised three, four years ago when we started Piura plant. And now looking forward, it’s all up to the market. We hold a very important market share. We remain solid leaders in the market we note. And we’re very optimistic at what may happen in Peru in the coming two, three years.

And hopefully, now new government will take some more weeks to heavily start doing what they promised they were going to do. And I think that’s going to have huge impact in our business in years to come. Thank you once again for your time. And of course if you have any questions, Manuel, Claudia and myself are always available.

Thank you very much for the time..

Ladies and gentleman, this will conclude today’s program. Thanks for your participation. You may now disconnect. And have a great day..