Good day, ladies and gentlemen, and welcome to Pacasmayo's First Quarter 2022 Earnings Conference Call. [Operator Instructions] And please note that this call is being recorded. At the conclusion of our prepared remarks, we will conduct a question-and-answer session. I would now like to introduce your host for today's call, Ms.

Claudia Bustamante, Investor Relations Manager. Ms. Bustamante, you may begin..

Thank you, Paul. Good morning, everyone. Joining me on the call today is Mr. Humberto Nadal, our Chief Executive Officer; and Mr. Manuel Ferreyros, 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. Mr.

Ferreyros 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 and 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 Nadal..

Thank you, Claudia. Welcome, everyone, to today's conference call, and thank you for joining us today. This quarter's results prove once more the resilience of the present cement industry, which is operating in the face of great uncertainty, both at the local and international levels.

Pacasmayo has been able to reach an outstanding 13% increase in revenues and an even more substantial 21.3% increase in EBITDA this quarter when compared to the same period in 2021, which was already a very strong quarter despite the difficult environment in which we have to operate.

As you all know, the current conflict between Russia and Ukraine has generated, among other things, an energy shortage, resulting in increased prices of oil, coal and gas. Coal prices have a direct and relevant effect on cement production. This is one of the main raw materials used in clinker production.

Although we use mostly anthracite coal, which is sourced locally and is ordinarily not exported because of its lower calorific value, the exponential increase in international prices of bituminous coal has also had a repercussion on the price of this coal.

Fortunately, our strategy approach of holding enough inventory of bituminous coal for our year-long supply of our key raw materials has allowed us to balance the use of more expensive coal with the one we had in stock and, therefore, mitigate the pressure on our margins.

We're also able to offset this cost pressure and actually improve our cement gross margin by 3.7 percentage points due to a reduction in the use of imported clinker, partly due to a slight decrease in sales volumes, but most importantly, because of the optimization of our kiln in Piura.

You must know that in the first quarter, this kiln was able to produce above its nominal capacity because of repairs made to the [indiscernible] at the beginning of the year as well as implementation of improvements identified by consulting firm that inspected the plant at the end of last year.

These efforts to optimize our own clinker capacity have delivered excellent results, which we hope we can maintain in the upcoming quarters. At the local level, even though the constant political noise has become part of our daily routine, the recent nationwide strike by transportation and agriculture workers did have an effect on our results.

This has affected our ability to [spud] cement during the days the strike took place. Currently, the production of Las Bambas, one of the largest copper mines in the country, has been halted due to the unresolved issues between local communities and the company. And the government's complete inability to mediate favorably in the negotiations.

This has already caused our country a loss of $110 million in copper exports and an estimated $62.5 million in mining royalties.

Furthermore, the current proposal by the government to change the constitution, mainly the changes in economic chapter, have added once more to the feeling of uncertainty and loss of confidence, having a direct effect on private investment. The expectation is for private investment to decrease around 4% of this year.

Although this may not have immediate effect in our results, it will definitely have a medium to long-term effect unless it is averted. 2022 marks a substantial milestone for Pacasmayo as it's a 10-year anniversary of our listing in the New York Stock Exchange.

We believe we have come a very long way since February 2012 when we took the bold and courageous decision to expand our horizons and commit ourselves to the highest standard of transparency and corporate governance.

During the last decade, Pacasmayo did its first international bond issue in 2013, a greenfield plant expansion in Piura in 2016 and a significant change in strategy in 2017 when we once again boldly decided to go beyond selling cement to become a building solutions provider.

We also became the first Peruvian cement company to be included on the Dow Jones Sustainability Index in 2019, one of only 2 Peruvian companies to be included in a Sustainability Yearbook in 2020, earning also the Industry Mover status that year as a company with the most improvement year-over-year.

We can proudly say that we have achieved our objective of being able to compare ourselves with the most important cement companies in the world despite a relatively small size.

But the most valuable thing we can learn from these past 10 years is that this is a constant and unstoppable learning process and that the ability to develop quickly and efficiently will always be our most important quality.

Finally, I'd like to reiterate that despite the headwinds, we will always, and I want to stress always, strive to continue delivering the best possible results by focusing what we know best, knowing our customers' needs and thinking outside the box and constantly, permanently pushing our limits to satisfy them in most beneficial way for our business and our shareholders.

Our almost 65 years of operating history have taught us that difficult times will come and go, but our resilience stems from the confidence that having solid values has given us, and we will continue to push us to stand tall and improve ourselves in all aspects of our business. We have a permanent and undivided confidence in our country.

I will now turn the call over to Manuel to go into a more detailed financial analysis..

Thank you, Humberto. Good morning, everyone. The first quarter 2022 revenues were PEN 525.4 million, a 13% increase when compared to the same period of last year, mainly due to the strong price strategy.

Moreover, gross profit increased 23.9% this quarter compared to the first quarter of 2021, mainly due to the fact that we were able to decrease cost by optimizing our clinker production, hence reducing the need of imported clinker. Turning to operating expenses.

Administrative expenses for the first quarter of 2022 increased when compared to the first quarter of 2021, mainly due to an increase in salaries, in line with an increased inflation as well as higher expenses in software licenses and occupational health expenses.

Selling expenses this quarter also increased 19.7% when compared with the same period of last year, mainly due to an increase in personnel expenses. We are operating with a larger sales force and higher salaries to support the significant increase in sales, and we have also had a slight increase in the provision of doubtful payment.

Moving on to different segments. Cement sales increased 14% this quarter when compared to the first quarter of 2021, mainly due to the increase in the average price, both from overall increase as well as from an improvement in the sales mix as we sold more of higher price type of cement.

Gross margin increased 3.7 percentage points during the first quarter of 2022 compared to the same period last year, mainly due to our ability to optimize our clinker production and hence decrease the use of imported linker.

This quarter, concrete payment and mortar sales decreased 12.5% when compared to the first quarter of 2021, mainly due to the sales down -- to a slowdown, sorry, in sales to the public sector and the halt in construction work experienced during the first month of the year, as COVID-19 cases resulted in lack of workers.

Despite this decrease in sales volume, gross margin improved 0.9 percentage points this quarter when compared to the same period of last year, mainly due to our decision to focus on higher margin markets.

During the first quarter of 2022, precast sales increased 6.3% compared to the first quarter of 2021, mainly due to the sales of higher priced products. Gross margins was negative mainly due to the write-off of past inventories during this quarter, which generated a cost increase as well as higher price of raw material.

In terms of EBITDA, this quarter was reached PEN 127.5 million this quarter, as a 21.3% increase when compared to the same period of last year. This improvement was mainly due to the higher operating profit levels as a result of cost optimization as well as to the increase in revenues.

Net profit for the period was PEN 45.7 million, a 43.7% increase when compared to the same period 2021, mainly due to the increase in operating profit mentioned above.

To summarize, this quarter, results are very [indiscernible] and as Humberto mentioned, clearly show our resilience and operational strength as we have managed to obtain them in a difficult and uncertainty environment. And now please open the call for questions..

[Operator Instructions] There were no questions from the dial-in lines..

We have one question from the webcast. It says we saw an improvement in clinker capacity in the Piura plant.

So do you expect to maintain the levels of clinker production?.

Yes. The answer would be, yes. Like I mentioned in my speech, we did some optimization work in the ball mill in Piura. So the numbers we provided this quarter should be sustainable over the -- for the rest of the year..

The next question?.

Yes. I mean -- like I mentioned also -- I mean we were able to offset a little bit the increase of the cost of bituminous coal because of the stock we may have. But yes, we're going to see, in the coming months, an increase in the prices.

It all depends if this world, increase of energy materials keeps going or not, and we will always try our best to keep the margins at the best level through price adjustments..

Another question from the webcast.

What is your revised outlook for EBITDA margin for 2022?.

Yes. So advise for EBITDA margin for the whole year should be around 27%..

The next question is regarding the pension fund.

So the possible pension fund injections to the public? And how do you expect that income to impact on your revenue?.

Well, you have to keep in -- bear in mind that 75% of our sales go to self-construction. These are basically from our sector, which is not part of the pension fund system. So even though there may be a little bit impact, I don't think it will be a substantial impact in the coming future..

We have 2 more questions.

One saying, aren't you worried about losing market share?.

Well, we are always worried about losing market share, and that's how we keep a very sound commercial strategy. It has not happened over the past years, and we remain confident that the capacity of our team, the quality of our products and the strength of our brand will remain our market share at the levels we have right now..

And then -- well, in line with that, do you expect to continue increasing prices?.

Yes. I think in today's world inflation environment, I think the prices will keep increasing because, I mean, we have to somehow adjust for our increasing costs..

We have another question.

Do you continue to consider the increase in capacity of clinker of the Pacasmayo plant necessary?.

Absolutely. If we take the sales of this quarter and we multiply them for the whole year, we realize that we have a deficit of almost 0.5 million tonnes of clinker. So I think the expansion in Pacasmayo is absolutely needed..

And then a couple of questions on first outlook for volumes in Peru for the whole year. And then about a cost control initiative that having been given for the government if we think -- cost control initiatives given a potential increase in coal costs..

Yes. Like we've been saying, I mean we had an outstanding year last year when we reached 3.6 million tonnes. Our highest expectation for this year is somehow to stay around those levels, maybe a little bit lower. That would be my guidance and my idea of volumes.

And yes, we are permanently trying to be more efficient in terms of all the energy usage because of the increasing coal. And I think we have achieved it in our plants. But we remain, I would say, always looking for ways to be more efficient in terms of energy..

We also have a question on an update on the construction of the kiln in Pacasmayo..

Sure. We have already purchased all the equipment from FLS in Europe. We already have selected the construction company, and we hope to -- some of the movements have started. So I think -- I mean we always mentioned that we should be up and running by the third quarter of next year, and we hope to reach that target..

I think we've addressed this question already, but the -- I mean is the view for cement volumes for the year has changed because of the reduction?.

No, it has not changed..

And then finally, if we can have a breakdown of the reduction in clinker imports, how much comes from the optimization and how much from the actual reduction in volume?.

To give you an idea, the nominal capacity of the Piura plant is around 90,000 tonnes of clinker per month. We are at levels of 97,000. So really, I mean, we have optimized probably 20-something tonnes of clinker in the first quarter. If you take that to a yearly basis, that would mean around 80,000.

That will be -- that's the reduction of clinker that has resulted from optimization period..

Okay. We have no more questions from the webcast..

There were also no other questions from the lines. I would like to now hand the call over to Humberto Nadal for closing remarks..

Thank you. The past couple of years have showed us that the world is constantly and rapidly changing and the transformation and adaptability are the key aspects of a successful business.

As I mentioned before, this year marks our 10-year anniversary as an NYSE listed company, and we would like to invite you all to come to our in-person Investor Day in New York on June 29 to further discuss this and many other strategic topics with our senior management team. We'll be delighted to host you.

As the world starts to find a new normal in the post-pandemic world, we could not be happy that we'll be able to finally see many of you face-to-face after over 2 years of almost exclusive virtual encounters. We will be giving further details in the coming weeks, but I want to take the opportunity to personally invite you.

And once again, thank you so much for following our company, and we are absolutely committed and convinced that hard times will come and go, but good companies will always remain. Thank you very much..

Thank you, ladies and gentlemen. This does conclude today's conference. You may disconnect your lines at this time, and have a wonderful day. Thank you for your participation..