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

Mauricio Serna - UBS Francisco Suarez - Scotiabank Jean Pierre Abusabal - AFP Habitat Joswil Vega - Integra.

Good morning. My name is Julie and I'll be your operator today. At this time, I would like to welcome everyone to Cementos Pacasmayo's Third Quarter 2017 Earnings Conference Call. All lines have been placed on mute to prevent background noise. After the speakers remarks there will be a question-and-answer session. This call is being recorded.

I would now like to turn the call over to Ms. Claudia Bustamante, Head of Investor Relations. Ms. Bustamante, you may begin..

Thank you, Julie. Welcome to our third quarter results conference call. I'm here this morning with Mr. Humberto Nadal, our Chief Executive Officer; and Manuel Ferreyros, our Chief Financial Officer. Before we begin, please take note of our cautionary statements. During today's remarks, we will make certain forward-looking statements.

These relate to expectations, beliefs, projections, trends, and other matters that are not historical facts and are therefore subject to risk and uncertainty that might affect future events or results. Description of those risks are set forth in the company's regulatory filings. It's my pleasure to now turn the call over to Mr. Humberto Nadal..

Thank you, Claudia. Good morning everyone and thank you for joining our call today. I'm very pleased to share Pacasmayo's third quarter results which again demonstrates our strong position as one of the industry's leading cement producers as well as our company's resilience, as we and return to pieces as usual.

While Coastal El Niño, challenged as last quarter, our performance we made shows a clear steady improvement in sales and the result -- and as a result profitability which Manuel will discuss in detail shortly. It is indeed very and I want to say very encouraging that the construction sector grew nearly 5% in August, the highest rate this year.

The INEI, Instituto Nacional de Estadística Institute, also recently served a preview for September which shows that the sector grew almost 9% last month, the highest rate in 42 months. This is once again a very positive sign of what we can expect for the months ahead.

Turning over to Pacasmayo specifically this quarter results are indeed very promising. Revenues increased almost 7% driven mainly by cement sales which grew over 9%.

It is extremely important to note that this quarter's growth is related fundamentally to home repairs from the self-construction segment and a small percentage to public spending, but none of it, and I want to stress none of it comes from the official reconstruction plan that should start materializing in the coming months.

No money has been yet spend from the gross of 26 billion soles allocated to reconstruction of the country's infrastructure of which almost 75% is in Northern part of our country. This growth in revenues has also translated into better profitability and margins.

EBITDA is the quarter of 2017 grew almost 40% as EBITDA margin increased from almost 4.6 percentage points when compared to previous quarter.

This clearly shows that besides the sales increase shows our ability to expand from ability as we continue with utilizing more of our capacity demonstrating great promise for margins with our coming increasing demand. The outlook therefore remains indeed very positive.

The demand environment for cement has strengthened significantly on the backs of major vessels project expected in the coming three to five years, while the private sector of the construction market showed also further growth.

We therefore expect to finish the year in a similar position as last one with mid-single-digit growth in 2018 and high possibility to reach even double-digit growth over the next three to four years as we look forward to broadening our service capacity to address important construction demand needed to drive both Peru’s recovery and important infrastructure development.

Our performance this quarter once again demonstrates the strength of our company’s operations and our ability to weather challenges and return to sound performance. Let me now turn the call over to Manuel to review our financial performance in more detail.

Manuel?.

Thank you, Humberto, and good morning everyone. Let me start with the headlines for the third quarter. As Humberto commented, we continue to deliver a stronger result and sequential improvements in EBITDA and sales, with a steady upturn in profitability.

Sales volume of cement, concrete and blocks increased 4.8% year-over-year basis primarily due to increased sales of the self-construction segment and a gradual increase in public sector spending directed at Coastal El Niño related repairs towards the end of the quarter.

As Humberto noted government construction spending related to Peru, Peru construction changes, plan has not yet begun which implies an opportunity for faster pace growth in the future. Revenues in line with improved sales volume described increased 6.7 year-on-year.

Gross margin reached 40.1%, a 2.7 percentage point decrease year-on-year mainly due to a higher raw material cost driven by El Nino. Cement revenues, which represents 88.1% of cement concrete and block segments increased 9.1% year-on-year mainly due to a recovery in demand in the north of the country.

Cement segment gross profit increased 5.1% from 115.8 million soles to 121.7 million soles in the third quarter 2017 compared to same period but gross margin decreased 1.8 percentage points. This was a gain due to an inflated cost of raw materials due to the Coastal El Nino related road damages as well as an increase in price of the coal.

In the third quarter 2017, consolidated EBITDA reached 107.2 million soles in line with the third quarter 2016, but reflecting a 38.9% increase from the second quarter of 2017 which is a significant sequential improvement worth noting.

This is primarily due to increased cement demand as well as a normalization of most costs which had increased in the second quarter of 2017 due to Coastal El Nino. Cement EBITDA margin for the quarter was 32.2%, up from 27.6% in the second quarter 2017, reflecting initial signs of a recovery in self-construction as Peruvians built their homes.

Once that construction plan execution begins in the fourth quarter and in 2018 we expect EBITDA margins to increase as capacity utilization increases and fixed costs are further delivered. Net income of continued operations in the third quarter was 38.6 million soles, a 15.7% decrease compared to third quarter of 2016.

This can be attributed to a lower operating profit due to inflated raw material costs, increased transportation costs, and exchange rate related to a gain in the third quarter of 2016.

In terms of operating expenses, administration expenses increased 10.3% compared to the third quarter of 2016 associated mainly with an increase in personnel expenses and consultant services and selling expenses decreased 2%. On a sequential basis, administrative expenses decreased 2% and selling expenses decreased 12.4%.

Moving on to the balance sheet, we ended September with a cash position of 121.8 million soles or $37.3 million, on a net debt to adjusted EBITDA ratio of 2.2 times. I would now like to turn the call back to Humberto for closing remarks..

Thank you, Manuel. As I mentioned in my opening remarks, we are indeed very pleased to see the strengthening operational economic environment resonating on this quarter's financial results. We're happy that we are able to recover quite fast from a difficult period of El Nino last quarter.

We look forward to the positive effects of significantly increased demand for cement on the back major infrastructure project expected in the three to five years ahead with further growth in the private sector our self-construction market is driven by Peru’s recovery and important infrastructure development.

Operator, can we now please open the call to questions..

Thank you. The floor is now open for questions. [Operator Instructions]. Our first question comes from Mauricio Serna with UBS. Mauricio, state your question..

Hi good morning and thanks for taking my question. I just wanted to go a little bit onto the results in the margins, particularly. You mentioned that you were affected by higher expenses to -- on the raw materials as you had to transport to alternate -- alternative routes.

I just wanted to make sure how the recurring would this be? Or if you expect the repairs of the roads to actually mitigate the costs which is thinking about the margins year-over-year, they were 200 basis points below.

And how much is that actually attributed to the sector? And if we could see like this coming back in the short-term? Or this more of a medium term effect on the margin? Thank you..

Yes, Mauricio. Yes, extra cost that we have for the transportation we have a new route because the main route that was across La Nina was totally destroyed. This -- the plan side to be fixed mainly in the next six months and we will have some extra cost for the transportation of our raw materials. In the other hand we have an extra cost of coal.

The problem of the coal was that -- because of the impact of La Nina, there was a strong rain in the north of the country and there were a lot of mines that were impacted. Most of them are being repaired already and we are obtaining enough anthracite coal from Peruvian coals, but as there has been a lot of hurricanes in the Caribbean.

They have been some impact in the cost of the international coal. So the total price of the coal has gone up. What we expect is coal cost going down in January again and coming back to the previous original costs..

Okay, okay. And if I may, just one more question regarding pricing. This quarter, you had much better pricing in line with inflation.

Not that we're actually seeing demand picking up and potentially you're in accelerating with the reconstruction volumes, how are you looking at pricing? Do you see any opportunities to do further fracking probably maybe at the beginning of next year and on around what levels? Thank you..

Thanks for the question, Mauricio. This is Humberto. I mean like you mentioned I mean we've been able to have a good reasonable price increase this year a little bit of inflation and for sure next year we will try to do the same and even a little bit further we think there is a little bit of room for further improvement in the beginning of next year..

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

Hi, thank you. Good morning chance hi Manuel and Humberto thanks for the call. The question I have is that we have seen a lot of our gridlock politically in Peru that has been a major cause behind the mere disappointing infrastructure spending and so forth. For the information that you provided in your press release, of which are always very helpful.

Thanks for that. Do you think that we are at an inflection point of a more constructive relation that may be able to finally unlock those infrastructures spending that we haven't seen in Peru. And I'll wait for two other questions if I may..

Sure Francisco, thank you for the question. I mean very good question and are we in inflection point? Absolutely because I mean if you're a zero, I think whatever you increase is inflection point. But besides that, I think we have a new Prime Minister. She's been in office for less than in six weeks I think so far things seem to be good.

She is even working initiative to get some legislative powers. So I think, yes. I think it's been a very long first year of the government trying to work out politically with the position but I think both sides have learned that the only way to move things [indiscernible] mutually collaborate while remaining different as parties.

So I do think that the second year all our learning process should payoff we should have a more effective government into -- of course, that's I'd like to [indiscernible] related to us..

Got it. Thank you for that answer. And another question relates with a follow-up actually on potential increasing prices little bit more than inflation.

Aren't you worried that considering that when UNACEM's utilization rates are so low that might actually attract more and cement from UNACEM? Is that a reschedule you might see? And what about coal usually you make more purchases of coals that's helped you a little your own -- on your tax planning at the end of this year.

Considering current prices on coal is that something that we should be seeing in this year or actually you might be interested more in pushing that those purchases of coal somewhere in the future when once that coal prices go down..

Francisco, it’s Humberto, and I take both questions; on the first one I mean for us pricing is part of our very solid commercial strategy, so only one element of it. So I think I mean we are very clear in the strength of our brands, in the positioning of our commercial structure.

And I think that’s how we are so strong in the market and pricing I mean it’s one only element there, we are of course always observing what is going on with the competition but I mean we’re pretty confident that as we have done in the past years, we’re able to raise prices and keep a very substantial market share, I mean we’re very, very confident in our strategy.

And going to the second part the coal prices segment I mentioned before I mean the hike in price was due to a specific situation of El Nino, so I mean it would make no sense for us to buy, we are seeing those prices dropping in the coming weeks. So we will wait for the appropriate moment and then we will piece up in Coastal..

Our next question comes from Jean Pierre Abusabal from AFP Habitat. Jean, state your question..

Hi how are you all? Actually most of my questions have already been answered. I wanted to know what kind of progress have you seen with the reconstruction process in the north..

Sure.

I think I mean it’s all about execution capabilities as we all know we have an authority appointed from Central Government and we are this regional thing and I think it’s hard time playing as a team and I think like everything I think after three, four months doing so I think they will learn little by little, so I think it’s all about execution, it’s not about money, it’s clearly not about the needs which are there but I think it’s all about capacity to deliver at the national, regional, and local level and hopefully we will see an improvement done in the coming months..

And our next question comes from Joswil Vega with Integra. Joswil state your question..

Okay. Thank you. Good morning everyone. Actually I have four questions.

I don’t know you want though four questions in just one short or one by one?.

One by one is better, so we don't lose track..

Okay, okay.

I would like to know if you have seen new competitors in your market and we know that during the fourth quarter of the year your company imported quantity of cement in and we would like to know how they are doing?.

Actually I mean they have imported that in February of this year. They’ve not really have any substantial impact at all in the market. I mean like I said before in my previous question, I mean it’s not really about bringing cement, it’s about brand, our positioning, quality, distribution. So I think there, there if it has been really extremely tiny..

Okay, great.

There have been some disagreements with probably in the floor and local governments in the north of the country, do you think this could complicate the construction process and also approximately of the rainy season maybe it could complicate more this process?.

No, I think I mean these agreements are will occur, will be prioritize to do things so I think they're normally in the course of business. They have like I said before they have to learn to work as a team and that disagreements are not bad. They only will bring up the best solutions.

About the raining season I mean clearly there's going to be no El Nino this year. I just saw the same report so long ago and the probability of El Nino is 5% of really what happen so the rain would be normal I mean we would be building like that for that kind of a rain for a year so that's not an issue at all..

Okay. And finally do you have a plan about what do with your treasuries, mainly with the investment and stuff..

Sure, that is something that I think was a very wise decision what we did in the past years because we created value for all shareholders equally for the time being we will keep them in our hands..

[Operator Instructions]. We poll for questions. At this time, I would like to turn it over to management..

Thank you. And once again thanks all of you for joining us, it’s always interesting and like sharing all these results. Should you have any calls -- sorry any questions of course Claudia, Manuel and myself anybody in the team are ready to answer. And let me just close by saying we are very happy with this third quarter.

I think it’s an effort of the company always trying to put its best results forward, like I said I mean I’m happy so bright that we’re able to come back so quickly and so strongly from a very, very soft element as El Nino and I think the best is yet to come.

So we’re very optimistic on what would happen in this last quarter this year and in the next few years. Thank you very much everybody for your time..

Thank you. This does conclude today’s teleconference. We thank you for your communication. You may disconnect your lines at this time and have a great day..