Good day, ladies and gentlemen. Welcome to Pacasmayo's Third Quarter 2023 Earnings Conference Call. [Operator Instructions] 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, Mrs. Claudia Bustamante, Sustainability and Investor Relations Manager. Mrs. Bustamante, you may begin. .

Thank you, Tim. 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 and 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, 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, we were able to focus on maximizing profitability. Revenue showed a sequential improvement, increasing 16.9% during the third quarter '23 compared to the previous quarter.

This was mostly a result of stronger demand as volumes increased 14.5% when compared to the previous quarter..

This was indeed in line with the recovery we were anticipating for the second half of this year. Although Year-over-year revenue did decrease. Consolidated EBITDA reached PEN 128.9 million, an increase of 3.2% when compared to the third quarter of 2022, and EBITDA margin also increased 2.5 (sic) [ 2.4 ] percentage points, reaching 24.9%..

This is the outcome of our focus on cost optimization, which has allowed us to maximize profitability as the demand environment begins to improve. I would like now to focus first on our remarkable achievements for our company. For the first time, Pacasmayo has entered a top 10 in the Merco Empresas y Líderes ranking for 2023..

Merco, as you all know, is the most prestigious corporate reputation ranking for Spanish speaking, Latin America and Spain. Present in more than 16 countries, it evaluates the policies and initiatives of companies through a survey of opinion leaders, journalists and executives, highlighting the perception of reputation in different organizations.

We are extremely proud of this achievement since Pacasmayo is the only company in the top 10 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 the value that stakeholders attribute to our company based on their perception and interpretation of the [ teams ] that the company communicates and projects over time.

Therefore, corporate reputation depends on the actual activities and intangible 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 [indiscernible] forecasting for 2024, currently with a high probability of being a moderate phenomenon.

We have already experienced the effects of inclement weather early this year with Cyclone Yaku that, among other things, interrupted part of the role that connects the main [indiscernible] with our plant. .

Thanks to our conservative inventory policy, we have not been affected by interruption, but we immediately started planning a solution. We are currently working with the government to install 2 modular bridges supported by concrete foundations and [indiscernible].

In addition, 2 [ depots ] are currently being built to provide transit continuity to these 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 hold the construction because of heavy rains.

Therefore, the schedule foresees a completion of the undergoing work by November when there's lower probability of heavy rains and only the surface work will remain at 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 project according to our schedule. As we have previously mentioned, this year, we launched EcoSaco, a cement bag that [indiscernible] integrates 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 establish [indiscernible] and consumer habits.

This is precisely what we are both glad and proud that EcoSaco [indiscernible] ESE sustainability price is weak, both in a sustainable product innovation category and the grand prize, which is all-around category. [ Award ] to a project with the greatest environmental, social and economic impact..

The EcoSaco is also among the 11 finalist in AP LATAM in 2 categories. These award nominations are not only a great sign as 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 3-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. This is the only path to achieve true, I mean, true sustainable development..

I will now turn the call over to Manuel Ferreyros to [ do a more detailed ] financial analysis. .

Thank you, Humberto. Good morning, everyone. As Humberto mentioned, our third quarter 2023 revenues were PEN 516.7 million, a 6.7% decrease when compared to the same period of last year.

Gross profit, however, increased 5.2%, achieving PEN 174.6 million, mainly due to lower costs as we discontinued 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 PEN 128.9 million this quarter, a 3.2% increase when compared to the third quarter of 2022.

For the first 9 months of the year, revenues decreased 9.1% when compared to the same period of 2022, mainly due to the lower levels of public and private investments as we -- 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 strategies, partially offset by the lower costs mentioned above.

[indiscernible] EBITDA margin for the first 9 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, but this is mainly due to temporary decrease in personnel expenses as well as lower third-party services.

During the 9 months of 2023, administrative expenses increased 2.9% compared to the 9 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 of last year, mainly due to an increased [ well ] maintenance services. During the first 9 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 9 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 9 months of the year, when compared to the third quarter and 9 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 cement 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 to the Piura airport and other minor works.

During the first 9 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 a decrease 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 a 5.1 percentage points in the 9 months of this year compared to the same period of last year, mainly due to a lower dilution of fixed costs..

Sales of precast material this quarter also decreased as public and private works are still at historical low levels. The decrease in sales was 18.3% when compared to the third quarter of 2022 and 31.9% during the first 9 months of the year when compared to the same period of last year..

Gross margin was still negative, mainly due to a low dilution of fixed costs as precast demand has a [ hault ] for lack of private and public projects as well as the effects of the flooding during the first quarter of the year. .

Net profit increased 4.1% this quarter when compared to the third quarter of last year, mainly due to the cost efficiencies, as we mentioned before as well as a slight decrease in expenses..

During the first 9 months of the year, net profit decreased 3.6% when compared to the same period of 2022, mainly due to the lower revenues, partially offset by the [ improved ] cost structure mentioned before.

However, net margin for both the third quarter and the first 9 months of the year increased 0.9 percentage points and 0.5 percentage points when compared to the third quarter and the first 9 months of last year..

In terms of debt, our debt-to-EBITDA ratio was 3.3x, which is a level we expect to progressively decrease as we start paying the club deal and the [ EBITDA ] increases since we currently do not plan to incur an additional debt..

To summarize this quarter's results, I have started to show the benefit of focusing on cost management and preparing for an improving demand environment. We are confident that we will still continue delivering positive results during the rest of the year. Thank you. .

[Operator Instructions]. So we have a question from [ Eduardo Velasquez ] who's a private investor. Excellent presentation, 3 questions. Can you give us a dividend guidance for [ 2023 ]. Number two, considering the extremely low stock price, are you evaluating a share buyback.

And number three, are you considering to exclude or call back the investment [ share class ] stocks?.

Thank you, Eduardo for your comments and to answer your 3 questions. In terms of dividend policy, that is something for the Board to decide, but I may say that our intention has been over the last years to keep the same level of dividend. So even though that's a board decision that should be in line with the past years.

Number two, are we considering buyback? No. And the reason for it right now is that we have been concerned for many, many years about liquidity of the stock. And if we were going to do a buyback that would only harm the low liquidity we already have..

And number three, in terms of the investment shares many years ago, we did a buyback. The company right now controls around 90% of the investment shares. And for the time being, we are not going to do any additional moves on that either. .

[Operator Instructions]. We have another question. This is from Ernesto Sanchez from [ Prima ].

Given the finalization of the investment in the Kiln 4, how much CapEx do you expect onwards on a quarterly basis? Any specific reason for the decrease in personnel expenses and 3D party services for Q3 2023? And finally, do you expect to maintain similar SG&A expenses or a normalization for the next quarters?.

Yes, sure. I mean I think Manuel mentioned that after Kiln 4, we have no extraordinary CapEx. So we're going to go back to the what we call the sustaining CapEx, which is around PEN 100 million per year. In terms of [indiscernible] SG&A, I mean, we're always for cost optimization, and we're also going to try to keep running a very tight ship.

And can you repeat the last part of the question, please?.

Yes, no problem.

Do you expect to maintain similar SG&A expenses or normalization for the next quarters?.

Yes, that will be yes. .

Our next question comes from Bianca Venegas from Credicorp Capital.

Can you give guidance on dividends and CapEx for 2023? And what are you expecting in terms of market dynamics for the following months in terms of self-construction and public investment?.

Yes. Like I mentioned before, I think dividends, even though it is the Board decision, and I will have to make that disclaimer, we should keep in line with the policy of the previous years. And CapEx, like I mentioned before, I mean, it should be around PEN 100 million per year, which is sustaining CapEx.

In terms of market dynamics, we are seeing and we anticipated this in our last call that [indiscernible] much stronger. That's why the volumes in the third Q has been around 15% higher than the second Q. We think we should close the year on the levels of the third quarter, and that gives us a very promising start for the next year.

I think self-construction will remain strong as long as agriculture and [ season ] recovers in the north and public investment will rally behind the [indiscernible]. .

Perfect.

[indiscernible] from AFP and [indiscernible] asked, can you give us more detail about what's included in other operating expenses in this quarter?.

Yes, thank you for the question. Basically, La Nina cross, as Humberto mentioned, were the [ maiden ] construction of the bridge, so basically, it's expenses of La Nina. We will have expenses this quarter and next quarter. .

Gamze Alpar from Impera Capital asks, could you please elaborate on how you see demand for 2024?.

That's a very good question, and it's very hard to predict when we have an economic and political environment that is so complicated in Peru. But we may not be optimistic. I mean, we are going to probably close this year a little bit under 3 million tons for this purchase.

And hopefully, next year, we'll be able to jump back on the -- over the 3 million ton level. But like I said, I mean, it's all going to depend on how the country goes so far. I mean the indicator for GDP growth and everything, I'm not too optimistic, but I think we'll be fine. .

Thank you. We have one more question from Marco Antonio Mejía Peñalva from Kallpa.

My question is about what are the other operating expenses of PEN 10.3 million in the income statement, please?.

Yes. Like Manuel mentioned, I mean, we are about preventing risks and since El Nino will be becoming even though it's going to be a medium [ strike ] phenomenon. We have donated the La Nina bridges and roads and everything, and that's extraordinary operating expenses. .

Perfect. Thank you. I'm not seeing any more questions. So I will now hand back to Humberto for closing remarks. .

Thank you. we stand at a point in time when social, environmental and geopolitical issues at the global level are becoming stronger and more recurrent.

Although we may be tempted to feel as if these things are either happening far away from us, or seem completely beyond our realm of action, the reality is that this content and equality are the core of these conflicts and that can happen anywhere..

The private sector is capable, extremely capable of deep transformational change that can help bridge those gaps.

As the Peruvian cement company that operates locally but recognizes its place in global economy, we will continue to focus on evolving our business model so that it is capable of achieving the transformational change that we need to contribute towards a future that is fair, tolerant, resilient and most of all, sustainable..

I want to thank you all for your renewed interest in our company. And as always, we remain should you have any further questions. Thank you very much for your time today. .

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