Cementos Pacasmayo - Earnings Call - Q2 2025

Transcript

Speaker 2

2025 Earnings Conference Call. At this time, all participants are in 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 the host of today's call, Mrs. Claudia Bustamante, Investor Relations Managing Director. Mrs. Bustamante, you may now begin.

Speaker 1

Thank you, Luis. Good morning, everyone. Joining me on the call today is Mr. Humberto Nadal Del Caprio, our Chief Executive Officer, and Ms. Ely Adriana Hayashi Hirahoka, 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. Ms. Hayashi 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 risks. Descriptions of these risks are set forth in the company's regulatory findings. With that, I'd now like to turn the call over.

Speaker 0

Thank you, Claudia. Welcome, everyone, to today's conference call, and thank you for joining us today. I would like to begin with a brief overview of this quarter's results. We saw an extremely solid recovery in sales volume, up 7.1% year-over-year as a result of stronger demand for cement as well as concrete, mostly for infrastructure-related projects. Consolidated EBITDA was $130.2 million this quarter, a 9% increase when compared to the same period of last year, despite the increase in expenses related to our collective bargaining agreements. The performance this quarter reflects our disciplined execution and alignment with our strategic objectives. Turning to the progress of our strategy, I would like to focus on the steady growth in infrastructure projects this quarter and throughout the year. It is crucial to understand that despite more than three decades of sustained economic growth, Peru still faces a significant infrastructure and housing deficit.

As a leading provider of building solutions, we are deeply aware of our role in addressing this challenge by delivering high-quality products and services, but more importantly, those that improve the quality of life and habitability of our clients. We are not only supporting infrastructure development, we are mainly driving economic growth and social inclusion. Cement is more than just a building material; it is a synonym for progress. There is no sustainable economic or social development without infrastructure, and we all know that. People need proper housing, access to markets, education, and health services. All of that begins with solid, resilient infrastructure. Dólares por Impuestos, or Work for Taxes program, is an innovative program mechanism that enables private companies to finance public infrastructure projects in advance of their income tax payments, receiving in exchange tax certificates.

This is an excellent mechanism to contribute to national development by executing those projects that have already been prioritized by local governments but have not yet been carried out, mainly due to limited execution capabilities. This has also proven to be one of the most effective platforms for showcasing the benefits of concrete and building solutions in our area of influence. The roads we build through Dólares por Impuestos have already proven their resilience withstanding severe climate events such as El Niño and Cyclone Yaku. This underlines not only the technical advantage of concrete and proper building techniques, especially in areas prone to heavy rainfall, but also, and mostly, the long-term value of building resilient infrastructure. We are very proud to be among the top five contributors to this program, and this year alone, we are committed over $100 million through it.

It's an extremely powerful example of how public-private collaboration can accelerate impact. While we demonstrate the quality, durability, and efficiency of our concrete solutions, we also help improve connectivity and local economic opportunities and support regional development. Of course, none, and I want to stress, none of these achievements would be possible without our people. For the seventh consecutive year, we're recognized as the top-ranked cement company in the American Talent Index and ranked 19th overall across all industries. Talent remains our greatest competitive advantage, our greatest challenge, and this recognition reflects our commitment to attracting and developing the best professionals in the market. We are confident that these positive results are just the beginning, and the momentum will continue to build in the coming quarters. We remain extremely optimistic about the future of our country and the future of our market.

I will now turn the call over to Ely to go into more detail and analysis.

Speaker 1

Thank you, Humberto. Good morning, everyone. This quarter's revenues increased 5.9% compared to our second quarter of 2024, mainly due to the increase in sales of cement, concrete, and pavement, reaching $484.1 million. During this same period, gross profit increased 11.2% when compared to the same period of the previous year, mainly due to the increase in cost of raw material on top of the above-mentioned higher revenue. Consolidated EBITDA was $130.2 million this quarter, a 9% increase when compared to the same period of 2024, mainly due to the previously mentioned increased operating income. For the first six months of the year, revenues increased 5.3% when compared to the same period of 2024.

Gross profit for the first six months of the year increased 8.2% when compared to the same period of the previous year, mainly due to the efficiency derived from our annual maintenance plan, as well as lower cost of raw materials. Likewise, EBITDA increased 5%, and EBITDA margin remained in line for the first six months of the year when compared to the same period of 2024. Turning on to operating expenses, administrative expenses for the second quarter of 2025 increased 13.8% when compared to the second quarter of 2024. Likewise, administrative expenses for the first six months of the year increased 17.9% compared to the same period of the previous year. This increase was mainly due to higher personnel expenses because of the union's bonus. In an effort to optimize time and resources collected by training with our labor unions, it's performed every three years.

As incentives close this multi-year agreement, we offer a higher bonus for the first year, therefore increasing expenses. Selling expenses increased 28% during the second quarter of 2025 and 23.2% during the first six months of the year when compared to the second quarter and first six months of 2024, respectively. This increase was mainly due to higher advertising and promotion expenses, as well as the union's bonus mentioned before. Moving on to different segments, sales of cement increased 6.3% this quarter when compared to the same period of last year, mainly due to increased demand. Gross margin increased 3.2 percentage points during this same period when compared to the second quarter of 2024, mainly due to lower cost of cementitious materials.

For the first six months of the year, results were similar, with sales increasing 5% and gross margin increasing 2.9% points when compared to the same period last year. During this quarter, concrete, pavement, and mortar sales increased 9.8% when compared to the same period in 2024, mainly due to increased sales of concrete as pavement for the Piura Airport project, as well as to other infrastructure projects such as Riverbank Defensive, the Tarata Bridge, and the Yanacocha project. However, gross margin decreased 3.2% points in the second quarter of 2025 when compared to the same period of last year. This decrease was mainly due to the execution of the Piura Airport project. This is a difference in exchange rate between the rate projected in the contract versus the real exchange rate, as well as increased costs related to the execution of the Piura Airport project.

As it extended over our planned execution period, we remain confident that developing building solutions is the right path for our company, even if it entails some short-term learning curve and additional costs. Likewise, for the first six months of the year, concrete, pavement, and mortar sales increased 16.1% and gross margin decreased 4.8% points when compared to the same period last year. Regarding precast materials, sales increased 4.1% this quarter and 5.3% during the first six months of the year when compared to the second quarter and the first six months of 2024, respectively, mainly due to an increase in sale volumes to the public sector. However, gross margin this quarter and during the first six months of the year was lower by 1.5% and 1.6% points, respectively, compared to the second quarter and first six months of 2024, respectively.

Moving back to our consolidated risk, net profit increased 29.9% this quarter when compared to the same period of last year, mainly due to increased revenues and gross profit, as well as a reduction in financing expenses. We decreased our debt level and therefore reduced our interest payments. During the first six months of the year, net income increased 16.5% when compared to the same period of last year. Finally, in terms of debt, our net debt-to-EBITDA ratio was 2.6 times, a level we feel very comfortable with. To summarize, this quarter's financial results show our ability to benefit from better market conditions while managing costs in order to achieve profitability. We are confident that we will continue delivering positive results during the rest of the year. Operator, can we now open the call for questions?

Speaker 2

Thank you. We'll now be moving to the question-and-answer section. If you'd like to ask a question, please press STAR 2 on your phone and wait to be prompted. If you're dialed in by the web, you can type your question in the box provided or request to ask a voice question. Please wait a moment or two for the questions to come in. Our first question is from Marcelo from Itaú Corretora de Valores S.A. Your line is now open. Please go ahead.

Speaker 3

Hi, everyone. Good morning. Can you hear me?

Speaker 2

Yes, we can hear you.

Speaker 3

Okay, thank you so much. I have two questions here. It's related to the second half. What are your expectations for volumes going forward? Should we expect the same trend as seen in the first half with this mid to high single-digit increase in volumes for Cementos Pacasmayo S.A.A.? My second question is related to CAPEX. We have seen the company disbursing around PEN 300 million per quarter as CAPEX. I would like to see what is your expectation for CAPEX for the second half of this year. Also, if you could break this down between maintenance CAPEX and growth CAPEX, that would be helpful as well. These are my two questions. Thank you.

Speaker 0

Thank you, Marcelo. In terms of volumes, we think the trend will remain single high digits. I think it's going to be a trend for the second part of the year. It's going to depend greatly on how infrastructure projects unveil. We have things like the Tarata or the La Leche Mutupe, that sometimes you're supposed to start in August and they start two months later. In general, I think it's very positive. I think the trend should remain. In terms of the CAPEX, we've been stating that at this point, we are not involved in any substantial increase of capacity. Our sustaining CAPEX is around PEN 100 million every year that is dedicated to our three plants and all our ready-mixed plants. We have small initiatives of CAPEX, maybe $2 million, $3 million, but nothing really substantial during this year or the coming years.

We are, I mean, in terms of capacity at 70-something %. We are ready to engage in an increased amount without increasing CAPEX.

Speaker 3

Okay, thank you so much, guys. If I just follow up here a little bit, in terms of, you know, as you guys are expecting this high single-digit for volumes increase for the second half, what could you expect for margins here? Maybe could you expect some EBITDA margin improvement versus the first half? Or do you believe maybe margins would be flattish versus the first half? If I may, just one final question related to dividends. As you guys mentioned that you don't have any expectations of a huge growth project going forward, what are the company's expectations for dividend distribution maybe for 2025?

Speaker 0

In terms of the EBITDA margin, it needs to remain between 28% and 29%. In terms of dividends, these are decisions that are usually made at the board and the shareholder level. We've been, over the last years, very consistent on the dividend level. This year, we see no reason to change that. If anything, I said in the past, the company policy has been always that the excess cash belongs to the shareholders. I think there's a higher chance that dividend may go higher than going lower, but for sure, I think it will remain at the same level after these years.

Speaker 3

Okay, very helpful. Thank you so much, guys.

Speaker 2

Thank you. Our next question is from Omar Avellaneda from Vinci Compass. Good morning and thanks for the call. I just have one question. We just recently saw Cemex use Chancay port to import cement. Does this infrastructure change competitive dynamics in the Peruvian market?

Speaker 0

Thank you for the question. I think Chancay is a great port. It's great news for the country. You have to bear in mind that Chancay is very close to Lima. If you talk about the dynamics in our market, we're much more influenced by any changes that will happen in the Salaverry or the Paita port. That being said, every new port may change a little bit of dynamic, but really associated to the areas close to the port. If you ask me, is it going to influence the south? No, is it going to influence the north? The Chancay port, maybe a little bit, but it's fundamentally focused into Lima. Chancay is an alternative to the Callao port.

Speaker 2

Thank you.

Speaker 0

Just one point.

Speaker 2

Sorry.

Speaker 0

If I go precisely, and one of the reasons they used Chancay in the Cemex case was because, for technical reasons, Callao was not available at the given point of the ship coming into the country. I don't know in the future they will repeat the same point.

Speaker 2

Thank you. Just a reminder, if you'd like to ask a question, please press STAR 2 on your phone and wait for the prompt. If you're dialed in by the web, you can either type your question in the box provided or request to ask a voice question. We'll wait a few moments for any new questions to come in. Okay, it looks like we have no further questions. I will now hand it back to the Cementos Pacasmayo S.A.A. team for the concluding remarks.

Speaker 0

Thank you. This quarter's performance reflects the strength of our long-term strategy and our ability to execute with purpose. Cement is at the core of Peru's development. It underpins better housing, safer roads, and more connected, inclusive communities. We firmly believe that poverty is one of the greatest threats to the environment. Without access to economic opportunity and basic infrastructure, it is difficult for communities to invest in sustainability. That is why our work goes beyond building materials and focuses on enabling a more equitable, resilient, and sustainable future for all. We have started in a great manner the first semester of this year, and we are convinced the second semester will follow, and we will post, hopefully, record results for this year. Thanks to everybody for the continued interest in our company. As always, if you have any further questions, we'll always be here. Thank you.

Speaker 2

This concludes the call. Thank you and have a nice day.