Good day, ladies and gentlemen, and welcome to Pacasmayo's Third Quarter 2024 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.

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

Thank you, Michael. Good morning, everyone, and thank you for your patience. 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, 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. My apologies for the delay, I was just landing on a plane. This quarter, we delivered very solid results in terms of margins, EBITDA and profitability.

Sales volumes this quarter recovered on a sequential basis, although still slightly behind the same quarter of 2023.

Despite this slight decrease in demand, we were able to achieve a record consolidated EBITDA of PEN154.6 million, an increase of almost 20% year-over-year as well as a remarkable increase of 35.9% in net income by basically focusing on operational efficiencies related to clinker production in our most efficient kilns as well as cost efficiencies in our sales of raw materials.

In our journey to continue developing our building solutions, this quarter, we have embarked into very relevant projects. First, we designed an innovative solution for riverbank protection.

As you probably already know, the Northern Peru is consistently affected by El Niño, resulted in strong rains that overflow the rivers and therefore cause significant flooding.

Traditionally, this -- the riverbank protection is done with steel and rocks, but since there are parts of the North where rocks are not readily available, we designed a new solution, using mainly cement, local materials, and mortar that is both more cost-effective and more durable.

We are currently implementing this in Lambayeque, but the solution is scalable and we look to expand it to other areas. Secondly, we have taken on a new challenge by collaborating with [Newmont] and [Bexel Corporation] in the construction of a water treatment plant at the Minera Yanacocha operation.

The treatment of water in mining is absolutely crucial for environmental sustainability and thus being able to maintain a balance between economic and social development in our country.

Proper management of water resources not only minimize the environmental impact, but also generate efficient use of the natural resources we have today, preserving them for new generations.

These two projects are our examples of how we are innovating and adapting our products and services to satisfy the current and potential demand for building solutions. Always, and I want to say always in a client-centric view and aligned with our purpose.

I would like now to focus on something that is absolutely crucial for the future of our business, including our own, artificial intelligence and machine learning. New technologies will bring a wide variety of opportunities, and there's no doubt that early adapters will be the biggest beneficiary.

Pacasmayo's AI strategy has been crafted to a multiphase approach, starting with a very deep understanding of the business and its needs. A robust operational and organizational model we'll design, incorporating expansion of our new building strategy, capabilities assessment and a clear governance model.

The implementation roadmap focus on three key fronts -- with our three key fronts. Preparing the organization for AI adoption, experimenting with AI solutions, and expanding the impact of AI across the enterprise. The strategy has resulted in high engagement that has satisfaction with 86% of employee participation and an 84% grade satisfaction.

We also developed seven successful pilot projects, including a fragmentation model, a commercial virtual assistant and an automatic back and cloud-based assistants. Overall, we must see that this strategy has also allowed us to prioritize use cases across various departments and positively impact the value chain.

It has not only delivered tangible results but has also laid the foundation for Pacasmayo to become a purely, and I mean, purely data and AI-driven company. The next step involves defining the scope and resources of full-scale implementation in '25, further cementing Pacasmayo's position of a leader in AI adoption within the industry.

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

Manuel?.

Thank you, Humberto. Good morning, everyone. This quarter revenues increased 0.2% compared to the third quarter of 2023, reaching PEN517.8 million.

However, during this same period, gross profit increased 12.1% when compared to the previous year, mainly due to the cost efficiencies throughout our operations, including our new kiln in Pacasmayo as well as lower cost of raw material, mainly coal.

Consolidated EBITDA was a record of PEN154.6 million this quarter, and EBITDA margin was 29.9%, a 19.9% and a 5 percentage points increase, respectively, when compared to the same period of 2023.

The trend was similar for the first nine months of the year, with revenues increasing 0.9%, consolidated EBITDA, 12.3%; and EBITDA margin, 2.8 percentage points when compared to the same period of last year. Turning to operating expenses.

Administrative expenses for the third quarter of 2024 increased 15.4% and 6.7% during the nine months of this year when compared to the same period of the previous year, respectively, mainly due to an increase in personnel expenses as a result of increased workers' profit sharing and higher IT research and cybersecurity-related expenses.

Selling expenses during this quarter increased 10.7% and 10.4% during the first nine months of the year when compared to the third quarter of 2023 and the first nine months of 2023, respectively, mainly due to increase in personnel expenses mentioned before. Moving on to different segments.

Sales of cement decreased 2.7% this quarter and 3.6% during the first nine months of the year when compared to the same period of 2023, respectively, mainly due to decrease in demand from the self-construction segment.

Nonetheless, due to our continued focus on efficiency, gross margin increased 7.3 percentage points in the third quarter of 2024 and 5.5 percentage points in the first nine months of the year when compared to the third quarter of 2023 and the first nine months of last year, respectively, mainly due to a cost optimization and lower cost of raw material mentioned before.

During this quarter, concrete, pavement and mortar sales increased 25.6% and 57.9% during the first 9 months of the year, when compared to the same period of 2023, mainly due to increased sales volume as pavement for the Piura airport project.

Gross margin decreased during the quarter and the first nine months of the year, mainly due to a difference in exchange rate between the projected rate at the time that the contract was signed on the current rate. Most of this impact was -- already been accurate, also, we expect the margin to improve in the upcoming quarters.

Sales of precast materials during the third quarter of 2024 and the nine months of 2024 increased 10.4% and 31% compared to the third quarter and first nine months of 2023, respectively, mainly due to increased demand from the public sector for the construction project, among others. Moving back to our consolidated results.

Net profit increased 35.9% this quarter and 11.9% during the first nine months of the year when compared to the same period of last year, respectively, mainly due to the increase in operating profit, as mentioned before. In terms of debt, our net debt-to-EBITDA ratio was 2.8x below the level obtained the previous quarter.

To summarize this quarter's financial results, show our ability to manage costs and focus on efficiencies to provide outstanding profitability. We are confident that we will continue delivering positive results during the rest of the year.

Can we please open the questions?.

[Operator Instructions] [Technical Difficulty].

[Technical Difficulty].

Excuse me, we couldn't hear the question at all. There was a lot of interference.

I'm not sure if you could ask the question again?.

[Technical Difficulty] Hello? Hi, Claudia....

Hello, yes..

Hi, Claudia. Just once again, we will try to get in touch with Mr. Marcelo from Itau BBA. He's reconnected with the telephone line. Mr.

Marcelo?.

Yes.

Can you hear me now?.

Yes, we can hear you loud and clear. Please go ahead, Mr. Marcelo..

Okay. Sorry for the interference before. So, guys, I have two questions here. The first one is related to cement volumes. So we saw these volumes increasing by 16% on a quarter-over-quarter basis.

And then my question is here is you guys see actually the cement volumes in Peru on a better momentum vis-à-vis what we have seen in the first half of this year. So, this is my first question here. And then a follow-up on that. How are you guys seeing cement volumes grow for 2025? So, this is my first question. My second question is related to margins.

you guys reached this 30% margin in the 3Q and cumulative numbers for 2024 is around 28%. So my question here is related to if you could expect now Cementos Argos with these margins or sustainable margins hovering around 30% or close to that. So, could we expect these margins going forward? So, this is my second question here.

And I'm sorry for the interference before..

Let me take that question. Related to the volumes, I mean, we are seeing an increase in the third quarter. We had anticipated when our call in the second quarter that the second part of the year will be better, we're seeing increased government spending in many things.

And next year, we are still running on the budget, but we have to bear in mind that there are very important public projects going on in the north. In each Chavimochic phase, that's going to be done under a G2G agreement with the Canadian government will be undergo.

So, I think we are pretty optimistic that next year, volumes should increase, of course, with respect to this year. We don't have a specific number right now. In terms of the margins, I think the increase we have seen has to be mostly operational efficiencies with our new kilns and everything. So, I think going into the future, they should remain..

We will now be reading out the text questions. The first text question is from Mr. Marco Mejía from Kallpa SAB.

How long is it going to impact the new project of Yanacocha to the dispatches of the concrete? Is it going to replace the volume the dispatches to the project at Piura airport?.

Could you repeat the question, please? I couldn't hear it..

Yes.

First question is how long is it going to impact the new project of Yanacocha to the dispatches of the concrete, is it going to replace the volume of the dispatches to the project at Piura airport?.

Go ahead, Manuel..

Yes, I can take this question. Yes, this project will last approximately 18 months, and the volume is going to be quite similar as the one that we've been in the Piura airport..

The next question is from Mr. Luis Ramos from LarrainVial. Hi, Humberto, Manuel and Claudia, congrats on the results. I have three questions. I'll read the first one.

First one, regarding the volume dynamics, what are your expectations for 2025?.

My expectation, like I mentioned, before 2025, we should see an increase in volumes compared to 2024..

Which are the drivers that should enable growth in self-construction?.

The drive-in self-construction are fundamentally two. One, employment is very important, and I think the fishing and agriculture are extremely important for employment in our region. Fishing has had a tremendous year, and so has agriculture.

So, I think the big driver to our self-constructing is in fact they want to have thousands of people very well employed and are very well paid, and that recently translates into cement demand later in the year..

The follow-up question from Mr. Luis. Regarding prices, it seems that there is a room for price hikes seems limited.

What do you expect for the price mix improvement in 2025?.

I think, I mean, there's no such thing as unlimited space for price hikes. We're always very cautious about price in terms of taking care of the brand, in terms of profitability and in terms of market share.

And I think we've done tremendous job in the past of maximizing price, bear in mind the other two variables, and we're going to keep on the same policy..

A follow-up question from Mr. Luis.

EBITDA margins hovered almost 30% this quarter, what is your guidance on margins for next year?.

EBITDA margin for the whole year should be a little bit over 29%..

We have a text question from Mr. Gerard Fort from AFP Integra. A few questions. Congratulations on the results. Number one, we have seen an improvement in gross margins throughout the year. However, this quarter's improvement has been above the improvement seen in recent quarters.

While this is attributed to the efficiencies at the Pacasmayo plant and lower coal costs, this has also been the case in previous quarters.

Could you comment on what has been the main driver for this quarter's improvement?.

The main drivers here, I mean, operational efficiency is something that we keep pushing. So, every trimester is an opportunity to keep increasing, I mean you have to realize that -- I mean there's always a process of learning the new kiln. Kiln number four now, it's really running like a fantastic shape.

And in terms of coal, I mean, we also achieved interesting prices and all those things translate to the fact of improving businesses..

The second question from Mr. Ford is related to the long-term expected margins for concrete and prefabricated products, given that there is an effort to expand the participation of these businesses..

I think concrete profitability is going to have to do a lot with the size of the projects. I mean when we get a Chavimochic in hand, when we get a Yanacocha achievement in plant design, those things are much more profitable than small concrete operations.

As we see public and private investments hopefully picking up in the coming years, then the margins for concrete should increase accordingly..

[Operator Instructions] So it looks like we have no questions at this point. I'll pass the line back to the management team for the concluding remarks..

Thank you. I would like to finish -- yes, sorry for delay. I would like to finish by briefly sharing with you that last week, I had a chance, along with several other Latin American CEOs, to visit three projects in Europe currently at the forefront of carbon capture.

Although reality of Europe is clearly very different from that of Latin America in terms of regulatory framework, economic incentives, resource availability and funding. It is nonetheless very gratifying to see such concrete steps towards carbon neutrality in the cement industry.

We are grateful for the opportunity to continue our learning journey in this field, consistent with our [Technical Difficulty] and I need to stress, needs of our countries. I think the balance is going to be 50% environment within carbon neutrality and being able to provide those 2 million Peruvians without a home and home for the future.

With this, thank you very much for your interest in our company. And as always, should you have any further questions, we will remain here at your disposal. Thank you very much..

Thank you very much. This concludes today's conference call. We'll now be closing all the lines. Thank you, and good day..